On January 18th, Dr. Lee Jong-Wook, director general of the World Health Organisation (WHO) reiterated his view (made public in early November last year) that it was only a matter of time before an avian flu virus (likely H5N1) acquired the ability to mutate into human form, sparking the risk of a global pandemic. There have been three influenza pandemics during the course of the previous century 1918, 1957 and 1968. Another pandemic is thought by many scientists to be overdue. As the number of cases increases (albeit slowly) so the media headlines have begun to pick up again after a lull over Christmas.
Although we remain fairly sanguine regarding the risks, the fact that a number of companies are taking high profile measures to protect their staff and that a number of US States are beginning to show some signs of agitation, does indicate to us that the risk is worth exploring. The purpose of this note is to consider, in the broadest terms, what the impact on the global economy might be were a global pandemic to break out.
A Flutter In The Dovecote
Reassuringly, the news regarding infection numbers has remained fairly low since the threat first emerged in the national consciousness last autumn. According to the WHO there had been 118 confirmed cases of human infection in just four countries (Cambodia, Indonesia, Thailand and Vietnam). Of those 118, 61 cases proved fatal.
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According to a mid-January update from the WHO the number of cases had increased to 148 in six countries (China and Turkey added to the list), with 79 fatalities. Critically, infection numbers continue to increase only very slowly and certainly not at the rate that might indicate the onset of a pandemic.
The Twittering Classes
The current concern is that avian flu (H5N1) might develop into a highly pathologenic and readily transmissible form of human flu and become a pandemic strain. To date there is still no clear evidence that current strains of bird flu have achieved that mutation. The risk, however, does need to be taken seriously. Influenza has a significant track record in causing large numbers of deaths including, perhaps most famously, the Spanish Flu outbreak at the end of the First World War which ultimately killed more people (between 50m and 100m) than died in four years of muddy and bloody combat shortly before hand.
As a counter-weight, however, it should be noted that, so far, all those affected in Turkey have been located in relatively isolated and impoverished agrarian communities and who have mostly been in constant contact with poultry. At present there appears to be no risk to the country's tourist trade.
A Wing And A Prayer
As a consequence we continue to take the view that the chances of anyone visiting Turkey and contracting a human variant of avian flu are extremely small. Nonetheless it is in the nature of the beast that if the disease continues to migrate, wild fowl showing no respect for national boundaries, it may not be too long before the first indications are reported here in the UK. Once that happens one would naturally expect the issue to soar up the political agenda, in much the same way that BSE did on the cusp of the new century.
The eradication of avian flu from this country, should it arrive, would involve certain costs. Unlike the BSE crisis, the cost of clear up would almost certainly have to be met by a government already struggling to keep control of the national finances. The clear-up cost to the government relating to BSE was ultimately estimated to be £3.7bn (including compensation for the slaughter of cattle). A bird cull would be expected to be significantly less expensive, but just as traumatic, for those whose livelihoods would be affected. However, just as with BSE, there would be certain indirect costs including potential lost revenue from tourism.
Again, however, the economic consequences of an outbreak in this country should not be over-stated. The UK economy overcame the BSE and "Foot and Mouth" outbreaks with little overall impact (although the impact on farming has, of course, been much more lasting). The problem occurs, inevitably, were H5N1 successfully to mutate into a human strain. Analysis would then take place regarding which the most susceptible sections of the population might be, what measures might be taken to limit the outbreak, how public confidence might be affected and how quickly might an effective vaccine be produced?
The economic impact of any pandemic depends, inevitably, on that part of the population most susceptible. HIV-AIDS has a greater economic impact as it tends to affect people already participating in the workforce. Others, such as SARS, which infected around 8,000 people and killed 775, or avian flu might naturally be expected to be more serious in the very young or the elderly, less significant demographics as far as economic disruption is concerned (although the panic surrounding SARS did, briefly, tip the Hong Kong economy into recession). While a pandemic might be expected to be more devastating amongst the elderly, analysis undertaken of the economic impact of previous pandemics seems to indicate that up to a quarter of the workforce could contract the flu virus and as much as 10% of the workforce may need to take some time off work. The economic consequence in terms of school closures, limited travel on public transport, reduced emergency services would be likely to be greater than simply the cost of clear up.
Inevitably perhaps, it is the fear of a mutating form of H5N1 and the onset of pandemic that is likely to have a more significant bearing on human consciousness. Thus, while the media plays up the risk, the authorities play it down. It should come as little surprise to anyone that, were a human strain to manifest itself it would be consumer-facing sectors which would inevitably suffer the most, including retailers, transport companies and the leisure industry. If the Asian SARS outbreak is anything to go by, the economic impact of lost tourism is pretty temporary.
No Need To Flap
Much has been made of governmental stock-building of vaccines such as Roche's Tamiflu. The UK's Dept of Health has ordered a stockpile of 14.6m courses of the vaccine, although its effectiveness against a highly virulent strain is not completely proven. At the same time the Dept is building stock piles of Amantadine produced by Alliance Pharma and traded under the Lysovir brand as possible use in combination therapy. Incidence of resistance to the product is low, except in those countries, such as China, where the product is already used extensively.
Although the economic impact of a human strain of avian flu could prove extremely significant, we see little sign of the virus building into a pandemic. Significantly there are, as yet, no incidences of human sufferers infecting health workers with whom they come into direct contact.
Furthermore, the furore caused by reports of its ever-westward creep has caused sufficient hysteria to result in increased take-up of the existing flu vaccination. By so doing, not only has the workforce spent fewer days sick over the latter part of 2005, but stock shortages have increased the pressure on product producers to increase the speed at which product can be made available. The economic impact, at this stage at least, might be said to have been positive, not negative!
Finally, if bird flu continues to hop rather than fly westward the chances are that winter, the period in which people tend to be most susceptible, will have past.
By Jeremy Batstone, Director of Private Client Research at Charles Stanley
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