Flu could derail fragile global economy

If the outbreak spreads quickly, analysts say the effect on trade could prolong - or even deepen - the recession.

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By Parija B. Kvailanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- A quick and extensive swine flu epidemic could derail a global economic recovery, and even prolong and deepen the worldwide recession, economists said Monday.

"We're not there right now. This has to first become a large-scale pandemic," said James Auger, senior analyst, North America, with IHS Global Insight, a global economic research and forecasting firm.

But if the outbreak does grow into a large-scale pandemic, Auger said global trade could be disrupted through export restrictions.

"It could lead to travel restrictions for goods and people through major control over ports and airports," he said.

The World Health Organization (WHO) said Monday that there were 73 confirmed cases of swine flu worldwide, including 40 in the United States. However, as many as 103 deaths in Mexico have been blamed on the flu, and 1,700 cases are unconfirmed. (CNN.com story)

Auger said the impact on market confidence will be more "widely felt."

Stock markets in Asia and Europe were mostly lower Monday. After starting with losses, U.S. stocks were mixed at midday.

'It just takes a little bit of bad news right now for sentiment to change," he said.

Trade hindrance: Auger said some countries had already implemented trade restrictions as a result of the outbreak, which the WHO classified as a "public health emergency of international concern" over the weekend.

"We were already seeing a predisposition to protectionism going on," he added. "So some countries could now take advantage of [swine flu] and use it as an excuse to protect their domestic industries."

One example: Russia banned imports of meat products from Mexico, California and Texas as a result of the outbreak.

"It's a very bad time for [the outbreak] to be happening when you want to remove trade restrictions to help economies recover," Auger said.

Tu Packard, senior economist with Moody's Economy.com, said the outbreak could potentially derail chances of a global recovery from the recession.

"We're talking about what's probably the most synchronized global recession in decades," Packard said. "The epicenter is in the United States but it has spread through trade and finance to other countries."

Protecting people: At the same time, those most vulnerable to infectious diseases are also people who have been the most hardhit by the recession in developing and emerging markets, she said.

"It's urgent that we assist these countries to survive the outbreak and the recession," she added.

Packard said she would be "very concerned" if the WHO upgrades the outbreak to a pandemic level in the days ahead.

If that happens, she said governments around the world -- as well as international agencies and groups such as the WHO, United Nations and the Group of 20 economic leaders -- need to show a strong coordinated policy response to stop an "over response" in world markets.

"Failure to do so is something we can't afford," she said. "Markets are strong but they are also jittery. Investors will look for any reason to sell."

In the meantime, Aparna Krishnan, senior analyst (health care) with IHS Global Insight, said the level of preparedness to deal with the swine flu outbreak is "high" compared to the SARS outbreak in 2003.

"In terms of treatments, there's enough stockpiling of drugs," she said. "The main problem is getting an accurate estimate on how many people are infected." To top of page

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