New Asian flu to hit economies CBS.MarketWatch.com
By Allen Wan, CBS.MarketWatch.com
Last Update: 7:01 AM ET March 31, 2003
HONG KONG (CBS.MW) - The last time Asia caught a cold back in the financial crisis of 1997, it took years for the region to recover.
This time, a different kind of bug is spreading and the impact on some of the region's biggest economies could be just as severe if it lingers at the same time the war in Iraq continues to curtail air travel.
On Monday, economists from several brokerage houses continued downgrading regional airlines and started slicing their growth forecasts for Hong Kong and areas hit hardest by the spread of the Severe Acute Respiratory Syndrome - a pneumonia that has already killed at least 57 people in 15 countries and sickened almost 1,600 worldwide.
Due to its dependence on international tourism, Hong Kong is most vulnerable to economic losses as a result of SARS, analysts say, though Asia as a whole could be negatively affected as overseas travelers shun the region altogether.
"In our view, the outbreak of the disease should further hurt investor confidence in the Hong Kong market, even before the economic impact is quantified," Y.K. Fu, analyst at Salomon Smith Barney in Hong Kong, said in a note.
Fears about the war in Iraq and fresh outbreaks of the disease sent Asian markets reeling Monday, with airlines such as Korean Air (KRNRF: news, chart, profile), Qantas (QUBSY: news, chart, profile), Singapore Air and Cathay Pacific facing the most turbulence. Read Asian markets.
Hong Kong GDP sliced
Salomon believes that SARS could slice from 0.2 percent to 0.9 percentage points from Hong Kong's economy this year, depending on how long the disease lasts.
Under a "benign scenario" (meaning weeks rather than months), Hong Kong's economy could decline 0.2 percentage points to 2.6 percent from projected growth of 2.8 percent in 2003, it said.
But in a worst-case scenario, the broker believes the former British colony's economy could be chopped by a third, based on the adverse effects on tourism from SARS, taking the 1997/98 so-called bird flu incident as a historical example.
For the second quarter, Salomon sees a 25 percent dip in tourist arrivals from the previous year, with the aviation, hotel, retail, transport and property sectors the most vulnerable.
A spokesman for Hong Kong's tourism board, Simon Clennell declined to quantify the possible impact from SARS but called it "quite a severe setback."
"We are carrying out travel promotions, but we've had to suspend our consumer advertising," he said. "It's a great concern going into April and May."
On Monday, Hong Kong's flagship carrier Cathay Pacific (CPCAY: news, chart, profile) announced it was cutting frequencies to eight destinations in Asia, leading to a four percent cut in capacity, said spokeswoman May Lam.
She said that the airline was basing the move on several external factors, not least of which is the spread of the mystery flu.
Hong Kong won't be the only economy suffering from the impact of SARS. While China and Vietnam will be hurt as well, their economies are much more insulated from global shocks.
Singapore in a sling
Analysts also don't think Hong Kong's arch rival Singapore will suffer to the same extent as the island's economy is less dependent on the services and tourism trade.
"Singapore's tourism receipts as a percentage of GDP is only 3.1 percent, 60 percent of Hong Kong's level," said J.P. Morgan analyst Christopher Gee in Singapore.
But don't tell to Japanese newlyweds Akira and Daisuke Kitamura, who had planned a honeymoon to Singapore prior to news of worldwide deaths and quarantines. "We've decided to go to New York instead," said Akira.
J.P. Morgan analyst Peter Negline reckons a 10 percent drop in passenger traffic for 10 days as a result of SARS will lead him to cut his 2004 earnings forecast for Singapore Airlines (SGPJF: news, chart, profile) by 4 percent.
The broker said a potential beneficiary from the decline in travel could be Singapore Telecom (SGTJY: news, chart, profile) due to "more voice and data traffic as international business travelers turn to video-conferencing to replace cancelled overseas business trips."
How it spreads
While SARS has made the daily rounds since it first appeared in media reports earlier this month, it's only been the last few days that the situation has deteriorated to the point that the U.S. and Canada issued health advisories warning against travel to certain parts of Asia.
On Sunday, the U.S. told its citizens to avoid unessential travel to Hong Kong, Singapore, mainland China and Vietnam. China appears to be have been hit the hardest, with some 800 cases and 34 deaths though news about how widespread the disease is has been hidden until very recently.
Over the weekend, the doctor from the World Health Organization who first identified SARS, Carlo Urbani, died from the disease.
According to the Centers for Disease Control and the World Health Organization, the illness begins generally with a fever, which is sometimes associated with chills or other symptoms, including headache, malaise, and body aches. Some persons also experience mild respiratory symptoms at the outset.
After 3 to 7 days, the person may develop a dry, nonproductive cough that might be accompanied by or progress to the point where insufficient oxygen is getting to the blood. In 10 percent to 20 percent of cases, patients will require mechanical ventilation.
It is difficult this early in the investigation to say exactly how SARS spreads. Close contacts of cases, including health care workers and family members, have developed similar illnesses. Examples of close contact include having cared for, lived with, or had direct contact with respiratory secretions and body fluids of people with SARS. |
