Flu scare could harm economy

Kyodo News

Economists warned Tuesday that the swine flu epidemic could hurt the already weak Japanese economy by discouraging travel and trade, and affecting stock and currency markets.

“If the effects were to last for a quarter, it would push down annual gross domestic product by 0.03 percentage point,” said Kyohei Morita, chief economist at Barclays Capital Japan Ltd. “If they were to stretch out for a full year, the downward push would be 0.12 point.”

Morita said the negative economic effects could include those resulting from a complete halt in travel between Japan and Mexico, where the death toll has mounted.

But the assessment should be interpreted “very broadly” as it is still uncertain whether the swine flu outbreak will develop into a pandemic and there is insufficient information at the moment.

Takahide Kiuchi, chief economist at Nomura Securities Co., said the swine flu epidemic is “not a negligible” issue with regard to the future course of the global economy and financial markets, citing the significant economic impact of past infectious diseases such as the Spanish flu that hit in 1918 and the Asian influenza in the late 1950s.

Kiuchi said that if the swine flu outbreak is largely contained within Mexico, the effects of the disease on the Japanese economy would be “limited” as exports to the country account for a mere 1.4 percent of Japan’s total exports.

But if the disease makes big inroads into the United States, Japan’s key trade partner, the impact would be large, and if an infected individual is identified in Japan, consumption would be hit such as through the cancellation of domestic travel and entertainment events, Kiuchi said.

Even if Japan escapes the disease while the United States and Europe are hit, it would not be good for the Japanese economy, Kiuchi warned. In that case, the yen would draw buying against other key currencies in a flight to safety, a move that would damage Japanese exports, he said.

A higher yen erodes Japanese exporters’ overseas earnings when repatriated.

The stock market has reacted sharply to the outbreak of swine flu, with the share prices of travel agencies falling on expectations of an increase in cancellations while those of drugmakers have risen in anticipation of surging sales of antiviral medicines.