Swine flu could extend recession by two years

Jul 20 2009 by Nic Paton Print This Article

Come on 2009, give us a break! We've gritted our teeth and survived the banking meltdown and world economies grinding to a halt. Now, just as it's beginning to look like we're over the worst of it, latest research has suggested there's a chance swine flu could snuff out any economic recovery this autumn.

According to research by the think-tank Oxford Economics a six-month severe swine flu pandemic, even if it doesn't cause that many deaths, could cost the British economy £60 billion and, just as worryingly, choke off any recovery.

A severe pandemic, it has argued, could cut gross domestic product by five per cent, causing the economy to shrink by about 7.5 per cent next year and enduring one per cent deflation throughout 2010-12 as consumers saved more and spent less.

Its warning came the death toll from swine flu in the UK rose to 29, with 53 patients in intensive care and infections running at 55,000 cases a week.

The chief medical officer for England Sir Liam Donaldson has also predicted the virus could kill as many as 65,000 in the UK, while the government has launched a national pandemic flu service helpline.

"There is a significant risk that the pandemic triggers a set of unfavourable behavioural changes that tip it into deflation. A flu outbreak in the autumn would hit just as the economy starts to recover from the credit crunch. It would threaten already fragile businesses and put further strains on financial markets and fiscal balances," the report suggested.

"This could generate a vicious cycle that postpones the recovery for another couple of years. The fact that UK households' balance sheets are more stretched than in many other countries makes the risk of deflationary dynamics larger than elsewhere," it added.

The think-tank has made its forecast on an assumption that 30 per cent of the UK population contracts the H1N1 virus, with 0.4 per cent of those infected dying.

However it has to be noted that this scenario is worse than the most pessimistic prediction set out by Donaldson, who predicted a 30 per cent falling ill rate and a mortality rate of 0.35 per cent.

Key areas where a pandemic could be felt most strongly included simply the fact that employees would not be to go to work, either because they were looking after people, caring for their children as schools shut or ill themselves. On average people are likely to be off for a fortnight in either scenario, it predicted.

Then the impossibility to travel, with transport networks likely to be severely affected, would impede the ability of companies to conduct business.

Fear of infection could also keep people away from public spaces such as airports, train stations, restaurants, cinemas and shopping centres, leading to cuts in travel and tourism and consumer spending.

The only bright spot here was that, as the UK was generally less exposed to international travel than some of its European counterparts, the effects might be less severe here than in some other parts of the European Union, Oxford Economics suggested.

Then, uncertainty about the impact and duration of the pandemic could deter companies from investing while financial markets would probably experience renewed tensions with

spreads between policy and market interest rates rising again and share prices negatively affected.

The SARS outbreak in Asia in 2003, for example, led to between 20 per cent and 60 per cent cuts in discretionary consumption and international travel.

Although, once the pandemic is over, the economic would in all likelihood bounce back, there was also a risk that swine flu could tip the UK and the world economy into deflation.

This was because it would hit at a time when businesses and banks were still reeling from the economic crisis, with already fragile companies succumbing to this new shock.

As the pandemic gathers pace, the UK government has said it is considering temporarily changing self-certification sicknote rules Ė or the amount of time workers can sign themselves off work without needing to see a doctor Ė from seven to 14 days.

The proposal has been welcomed as "pragmatic" by organisations such as the HR body the Chartered Institute of Personnel and Development, but the manufacturers' body the EEF, has urged employers to be vigilant that employees do not abuse the system as a result.

Employer health and wellbeing company AXA ICAS has also urged employers to recognise the psychological impact swine flu could have on people's work and business performance.

Parents will be concerned about their children, employees anxious about the financial and wellbeing risks of catching the virus and managers will be worried about the impact of staff needing time off sick or to care for others who are, it pointed out.

Managers needed to be holding conversations with workers about what they will do if schools shut, if family members get swine flu or if they have to take time off themselves, and whether options such as working from home might be feasible, it argued.