SARS could hurt Asia growth more than Iraq war

SARS could hurt Asia growth more than Iraq war

Alan Yonan Jr., Dow Jones, Singapore

The fallout from severe acute respiratory syndrome (SARS) could
do more damage to Asian economic growth this year than the war in
Iraq, an international brokerage warned on Wednesday as the
number of infections continued to grow in the region.

Asia has been the focus of the deadly illness, accounting for
more than 1,600 of the 1,804 SARS cases worldwide, according to
the latest figures on World Health Organization's Web site. The
WHO said 58 of the 62 SARS deaths globally have occurred in Asia,
mostly in China and Hong Kong.

The biggest economic impact in Asia thus far has been on the
tourism, retail and consumer services sectors, although analysts
caution the effects could ripple through the broader economy the
longer the deadly illness continues to spread.

BNP Paribas Peregrine has trimmed its 2003 economic growth
forecasts for various Asian countries by 0.4 to 1.5 percentage
points, and said that compared with the Iraq war, SARS is an
"arguably more serious problem.

"The SARS epidemic will cast a long dry spell on tourism and
its associated industries. We expect the airline, hotel, trade,
retail and property sectors to be adversely affected by the
pneumonia problem," Peregrine said.

Singapore, which counts on tourism for nearly 7 percent of its
gross domestic product according to Peregrine, would see an
estimated 1.5-percentage-point reduction in its economic growth.

The hardest hit Asian city so far, however, has been Hong
Kong, where empty airliners, deserted department stores and
canceled concerts provide ample anecdotal evidence of the drop-
off in tourism and consumer spending.

"The SARS outbreak has deterred foreign visitors (to Hong
Kong), but it also keeps locals out of shops," Standard Chartered
Bank said in a note to clients.

Things could get even worse for the region's tourism industry
if the WHO advises travelers to avoid going to Asia, as is being
considered.

In a rare move, the WHO raised its concerns following
information from Hong Kong authorities that they have been unable
to find a link between new cases there and patients previously
infected with SARS.

WHO could decide as early as Wednesday whether it will advise
against travel to Asia.

Downward economic revisions for Asia by investment banks,
meanwhile, continued to mount.

Morgan Stanley Wednesday cut its 2003 economic growth forecast
for Asia ex-Japan to 4.5 percent from 5.1 percent, which was
based on the "most optimistic" scenario.

It said its regional revision assumed a 15 percent decline in
tourism revenue and a "100 percent multiplier effect on domestic
demand in the retail sector."

The GDP estimate was based on a projection that the impact of
SARS would last one quarter. Downward revisions for individual
countries ranged from 1.1 percentage points for Malaysia to 0.2
point for Indonesia.

"If SARS lasts for two quarters our estimate of GDP impact
doubles," wrote Andy Xie, the Morgan Stanley economist who
authored the report.

"We want to emphasize that we believe this medical crisis is
the gravest since the 1998 Asian crisis. Its ramifications are
still difficult to grasp," he said.

Xie added that particularly troubling is China's lack of
disclosure regarding the spread of the illness there.

"The new leadership in China is facing its first serious test.
Transparency and determined responses are necessary to sustain
foreign investors' trust in China," he said.

John Stuermer, an economist at Bear Stearns Investment Co. in
Singapore agreed.

"This SARS episode raises questions about the transparency of
local government, in addition to the fact that investors may be
afraid to visit their investments."

Goldman Sachs estimated that SARS could shave 0.7 percentage
point off economic growth in Hong Kong for every quarter the
health scare continues. The estimated quarterly impact on
Singapore would be 0.5 point, Taiwan 0.3 point and Thailand 0.2
point, according to the report.

Standard Chartered Bank said some travel agencies in Hong Kong
have reported declines of up to 90 percent in their volume of
business. Other anecdotal evidence has retail traffic down 50
percent, the bank added.

Based on these initial reports, Hong Kong could lose HK$6
billion a quarter in travel service and transport revenue, and
HK$3 billion a quarter in hotel, restaurant and retail revenue,
Standard Chartered said. The total losses would translate into a
0.5-point reduction in annual GDP, the bank estimated.