Swine Flu Can Delay Economic Recovery World

Swine flu may slow the global recovery April 30, 2009 Do you have to analyze that about 70% of the economic news is read in various media around the world are mentioned swine flu? It really never ceases to amaze me. The virus is altering daily life of the population. Mexico is virtually paralyzed. No school, no public shows or movies, you can not go to restaurants (they can only sell food to go). You can hardly breathe, but using masks. The Argentine newspaper "The Nation? includes experiences of people living in Mexico. One of these people said, "I am Mexican and am married to an Argentine. Here, there is talk of nothing else than the epidemic. We have a 9 year old girl who asks questions having been changed by their environment. One as a father does not know what answers to give and how to do without causing more anxiety and fear than there?.

Not only uneasy but also hits the pockets. In yesterday's article I talked about the impact that the epidemic would have on the Mexican GDP that could generate a contraction of up to 1.5 percentage points. I did not make reference to the impact of flu on the global economy but was aware of that affect. Yesterday, the World Health Organization (WHO) decided to raise the alert level to 5 (of a total of 6 phases) and acknowledged that the declaration of a pandemic is imminent so that the probability of an impact on the economy of not less is now global significance. At least the virus will serve as an excuse to turn that forecasters have been wrong both projections of global economic growth for this year. Not really hard to anticipate that swine flu will impact the global economy. What is difficult going to determine how it will. It is clear that there are certain economic sectors that are affected globally. One is the tourism sector and the sectors linked to it, as the hotel sector.

Seeking the opinion of the markets, I see that they have anticipated the impact of the epidemic on certain commodities. The progress of the flu is striking, for example, oil prices and soybean and corn. The fall in oil prices due to fears that the epidemic affecting the air transport of passengers, thus affecting a drop in fuel demand, while the fall in agricultural commodity prices has been observed mainly in those used as food for pigs (soybean and maize have been most affected because they are used for this purpose). I think not only have to focus the impact of the epidemic on the decline in demand in certain sectors, but also follow closely how this can impact the health of its constituent companies since it may trigger a wave of bankruptcies with effects that go beyond these sectors in particular. For companies it is a good time to receive a reduction in demand, which already is weakened by the global crisis.

The situation is more complex still when we remember that the international financial sector is not able (or willing) to provide financial assistance to companies that increases their risk of insolvency. So far I have not seen much discussion about the effect that the epidemic would have on the pace of global economic recovery. Even I was struck by the optimism that is maintained both in the U.S. as in Europe. In Europe, consumers and business people are in better spirits and this is reflected in the Economic Sentiment Indicator (ESI) in April prepared by the executive. The ISE rose 2.5 points in the euro area, up 67.2 points, while the European Union did by 3.5 points to 63.2 points. As positive as the rise in confidence is that there has been an improvement in most countries. The economic reality of the European countries certainly does not justify the improvement in sentiment in the population. Economies continue to contract (yesterday saw the steepest drop in the Spanish products since 1970) and even the European Central Bank (ECB) acknowledges the uncertainty about how lives can change the product in the eurozone.

Perhaps one might think that the best hope of the European population conditional on recognizing signs of improving U.S. economy. These signs, according to the Federal Reserve (which yesterday decided to keep unchanged its benchmark interest rate) indicate that the U.S. economy shows a modest improvement. Certainly should be modest and very recently this improvement since it recorded a fall of 6.1% in the first quarter of the year on year. The depth of this fall is combined with the fact that it accumulates three consecutive quarters of decline for GDP, a situation not experienced since 1974-1975. Despite the steep fall in the economy, to sit on the population, last week we took into account the observed improvement in U.S. consumer confidence which is a positive sign to raise hopes of recovery in domestic demand. It is less clear that this survey took place before the swine flu fear to expand the way it did. Can you blame over-optimism among citizens of the United States and Europe? Before the epidemic, probably not.

While the economy was still fragile with several low-risk sectors, the change of mood was a very useful item to fuel recovery. But with the swine flu threat, perhaps the view is modified in a manner no less. If swine flu continues to spread, probably the global economic recovery to wait until 2010 to start. The spread of influenza to limit the global population and consumption will also have an impact on the level of investment as several projects will be suspended until the outlook improves. ¿Delay recovery and deepen the contraction of the economies? While I believe that the epidemic will slow the recovery of the global economy, not postpone it too long more. Perhaps the greatest effect may have in terms of depth of the fall of the global product that can generate. The epidemic has become a new setback for the global economic recovery. Can you come up with something else?