East Asian economies in shock after SARS alert

East Asian economies in shock after SARS alert

Agence France-Presse, Singapore

One month after the world was first alerted to a baffling viral outbreak, key East Asian economies are in shock as travel, retail and other industries are being sapped dry by the elusive disease.

Regional growth forecasts are being slashed as the climate of fear spawned by the Severe Acute Respiratory Syndrome (SARS) grounds airplanes, shuts down schools and casts a pall over corporate boardrooms and factory floors alike.

The World Health Organization (WHO) issued a global alert on March 12 after it was alarmed by the appearance of an "atypical pneumonia" in Vietnam, Hong Kong and southern China's booming Guangdong province.

The economic impact of the WHO alert and subsequent revelations by national governments was immediate. SARS has now infected more than 3,000 people in more than 30 countries and killed at least 112 of them.

And if it lasts longer, the impact of SARS could go beyond demand-driven sectors to the global supply chain since the disease is centered on greater China, the world's fastest-growing manufacturing center, economists said.

Singapore and Hong Kong, both densely-populated island economies, have suffered the sharpest dislocation due to the high proportion of their people affected by SARS, and their critical dependence on the external world.

Thailand and Malaysia, which are heavily dependent on tourism, are also expected to suffer more than countries like Indonesia and the Philippines, said Daniel Lian, an economist at Morgan Stanley in Singapore.

"SARS is exerting an uneven negative impact on Southeast Asia," he said in an analysis issued Friday.

Pradumna Rana, head of the regional economic monitoring unit at the Asian Development Bank (ADB) in Manila, said it was difficult to put a price tag on the economic cost of SARS so far.

"But beyond economics there has been a tremendous human cost and medical cost," Rana told AFP by telephone.

"We don't know how long it will last, how far it will spread, there is a lot of uncertainty, but I suppose on a qualitative basis, there will be a negative demand shock in the form of reduced consumption and expenditure on service sectors like tourism, travel, entertainment and retail," he said.

"That we're already seeing. If the scare lasts longer then there could be supply side effects also because of stoppages in workplaces ... or it could affect shipments."

Steve Brice, chief Southeast Asia economist at Standard Chartered Bank in Singapore, said that "basically we're seeing a significant downward revision of growth forecasts for countries like Singapore and Hong Kong."

Singapore Prime Minister Goh Chok Tong has already warned that the city-state's gross domestic product (GDP) growth this year could be slashed by up to one percentage point.

Brice said that "one of the major impacts is going to be on productivity because people are much more conscious of how they work with other people, especially if someone coughs or sneezes."

In a human version of the computer back-up measures against the dreaded "Y2K" bug before Jan.1, 2000, companies are splitting up key teams and insulating them to minimize the chances of unchecked SARS contamination.

International Monetary Fund chief economist Kenneth Rogoff said the effects of SARS could lower Asian growth by 0.25 percentage points if it lasts just three months. Private banks are already making sharper revisions.

Morgan Stanley has already cut its 2003 GDP forecast for Singapore from 2.9 to 2.1 percent, for Malaysia from 4.1 to 3.0 percent, for Thailand from 4.0 to 3.5 percent, for Indonesia from 3.2 to 3.0 percent, and for the Philippines from 3.4 to 3.1 percent.

Economists are split on the potential damage to China's vast economy, with some seeing a marginal drop in GDP growth despite a serious impact on tourism.

Global credit rating agency Standard and Poor's however said SARS was proving to be more damaging to economic activity than the Iraq war, and will review selected Chinese companies to check their vulnerability to the effects of SARS.