• Home
• /
• Business

Swine flu outbreak dampens economy hopes, markets

LONDON - An outbreak of swine flu dampened tentative hopes for the global economy, sending markets lower on Monday, and analysts fear a possible pandemic could prolong the downturn and force countries further into recession.

Policymakers had begun to suggest the global downturn was slowing after some companies reported better-than-expected results and data suggested a return of consumer confidence.

“It may be that this swine flu does not tip the human fear scale sufficiently to result in substantial economic/market damage Ó but if it did, with the economy already in tatters, the results could be catastrophic,” ING analysts said in a note.

Stock markets fell in Asia and Europe as investors feared a further shock to a still fragile global economy.

European shares traded lower, with the FTSEurofirst 300 index down 1.36 percent at 1215 GMT and U.S. stock index futures pointed to a more than 1 percent drop at the open. Travel and leisure-related stocks were hit by fears the outbreak would hurt travel but drugmakers rose on vaccine hopes against the virus.

A Reuters poll found a slim majority of analysts saying the bottom had yet to be hit in the worst global recession since World War Two. The bulk said the financial crisis would last anywhere from six months to another two years.

Dominique Strauss-Kahn, managing director of the International Monetary Fund, said he did not see a global economic recovery before 2010. Speaking on CNBC, Strauss-Kahn said he hoped the worst was now over but that “green shoots” in the global economy were mostly in the United States.

“Financial and macroeconomic stability are still some way off and we don’t yet have the foundation for a solid recovery,” said Lena Komileva, chief G7 market economist at interdealer broker Tullett Prebon.

HOW FAR?

European Central Bank policymakers suggested further reductions in the main refinancing rate but differed as to how far they should go.

Governing Council member Nout Wellink was quoted by news agency Market News International as saying the ECB should discuss cutting interest rates below 1 percent.

Fellow ECB Council member and Bundesbank President Axel Weber, however, said he saw 1 percent as the lower limit for the main refinancing rate, now at 1.25 percent.

“I think 1 percent is a sensible lower limit, because you can’t look just at the main refinancing rate. The deposit rate also plays a role,” Weber told the Frankfurter Allgemeine Zeitung in an interview.

Spain became the first country in Europe to confirm a case of swine flu in a man who returned from a trip to Mexico last week. But his condition, like that of 20 cases identified in the United States and six in Canada was not serious.

The virus, a new strain of swine flu, has killed 103 people in Mexico and spread to the United States. The World Health Organisation said the outbreak was a “public health emergency of international concern” that could become a pandemic, or global outbreak of serious disease.

The World Bank estimated in 2008 that a flu pandemic could cost $3 trillion and result in a nearly 5 percent drop in world gross domestic product, damaging prospects of recovery in a world economy deep in financial crisis.

The SARS outbreak, which disrupted travel, trade and the workplace in 2003, cost the Asia Pacific region an estimated $40 billion. It lasted six months and killed 775 of the 8,000 people it infected in 25 countries.

Switzerland’s Roche Holding AG and Britain’s GlaxoSmithKline Plc are the two big pharmaceutical groups set to benefit most as governments and corporations step up orders for their drugs Tamiflu and Relenza.

Their shares rose 4 and 3 percent respectively on Monday. But analysts said the commercial impact would be muted as many governments had already placed substantial stockpile orders because of the previous threat posed by avian flu.

The delicate state of the global economy was underlined by the Japanese government which cut its economic forecasts on Monday, saying gross domestic product would shrink 3.3 percent over the next year, and a senior ruling party official said further stimulus would be needed.

The Bank of Japan is expected to keep interest rates near zero when it meets on Thursday but cut its economic forecasts and maintained a cautious view on the global outlook. BOJ Governor Masaaki Sharakawa has signalled the BOJ’s monthly policy review will predict a gradual recovery towards the end of this year or early in 2010.