More bad times are certainly on the menu. Across Asia, a region relatively remote from war fears, pestilence is the specter that haunts the economy. Although the death toll from severe acute respiratory syndrome (SARS) remains relatively small, fear that a killer virus is rampaging unchecked has stunted commerce from Seoul to Tokyo to Singapore, with dramatic implications for the rest of the world. Beyond the obvious victims–travel, shopping and the once ubiquitous business lunch–SARS has derailed trade shows, delayed movie releases, shuttered factories and threatened to disrupt the flow of everything from Nike sneakers to Motorola handsets. “It’s not just like we got hit by a truck,” laments Yu Pang-Chun, chairman of the Hong Kong Retail Association, whose 500 members report sales declines of 30 to 80 percent. “It’s like a truck, a bulldozer and a locomotive fell on us. This is the worst crisis we have ever seen.”
The economic prognosis is still largely guesswork. Yet analysts across the region forecast losses that, in some cases, approach the magnitude of the 1997-98 Asian financial crisis. Last week BNP Paribas downgraded its GDP forecast for eight Asian countries by 0.4 to 1.5 percent. Goldman Sachs, in turn, warned that losses in Hong Kong, Singapore, Taiwan and Thailand could amount to 31, 25, 20 and 15 percent of GDP respectively this quarter–or roughly $38 billion just in those four economies. “China is the wild card,” writes –Morgan Stanley’s chief economist in Hong Kong, Andy Xie, who says Beijing’s mismanagement of the outbreak could undermine investors’ trust in the world’s fastest-growing economy. “Ultimately, the potential impact on Hong Kong’s economy… is unknowable and essentially impossible to estimate,” warns a new report by UBS. “We do not yet know the severity of the outbreak–are we at the beginning, the middle, or the end?”
Regardless, the damage is being felt now. Japan Airlines entered April believing that SARS would have little influence on its bottom line. The 20,000 cancellations for the month were roughly double the March tally, and those were mostly ascribed to war jitters. Now, Japan Airlines expects further flight cuts are inevitable. Also citing SARS damage, Air Canada has declared bankruptcy, while other North American carriers–chiefly United Airlines and Northwest–are bracing for a crash in transpacific traffic. Singapore Airlines cut 60 flights from its weekly schedule, following similar moves by Hong Kong’s Cathay Pacific and Dragonair.
The knock-on effect has hit hotels, tourist markets and restaurants–even taxis. Singapore driver Law Swee Choon still takes passengers to the airport, but now he returns with an empty car to avoid contact with incoming tourists. “It’s too dangerous,” he says. “I’m also avoiding areas around hospitals.” Consumers are likewise avoiding potential danger spots including theaters, subways, markets and malls. “All my friends are going out to eat less,” says a Hong Kong banker. “To go to any public place is risky because you don’t know if you can catch germs.”
In Japan and South Korea, where SARS cases have yet to be confirmed, exports will likely slow as manufacturing slows in infected countries. That’s because both sell the region’s capital goods, meaning that factory closures in, say, Guangdong would translate into fewer orders. Last week Korea’s largest chaebol, Samsung, joined other Korean companies in calling home employees’ families. Says a Japanese manufacturing executive who employs thousands of workers in southern China: “The hardest part of the SARS outbreak is that we simply can’t predict what will happen a week from now.”
In Hong Kong and Singapore, banks and brokerages are scrambling to maintain core operations. Their emergency measures include segregating staffs into teams capable of working from home, using teleconferencing instead of real gatherings (SingTel reports a 50 percent rise in the number of sessions it hosted last week), even quarantines to keep essential staff healthy. After an employee fell ill with SARS late in March, HSBC Holdings sent home 50 traders from its global-markets unit. Their orders: stay put for a week to guarantee their fitness, then begin work at a contingency site to keep the business going should their dealing room–Hong Kong’s largest–need to be shut down. “For security reasons, the location of the other office is a secret,” says spokesperson Pierre Goad.
Until SARS, Asia was the global economy’s only bright spot. Last week Morgan Stanley’s chief economist, Stephen Roach, predicted that SARS could trigger a global downturn by slowing expansion in Asia, “the one area that had basically been keeping the world economy afloat.” He warned that SARS could shave 0.1 percent off global economic output, pushing growth below the 2.5 percent level worldwide–the rate economists generally recognize as the threshold of recession. The bug’s ultimate economic bite depends mostly on how far it spreads. Today’s forecasts assume two things: minimal additional outbreaks in China, and no infections in Japan. If one or both prove wrong, the wound could be catastrophic. An outbreak in Japan could compel millions to hunker down, a development guaranteed to suppress domestic consumption in an already shaky economy.
Even if SARS proves to be the economic equivalent of the 24-hour flu, recovery could take months. Michael Roche, director of the concert promoter Lushington Entertainment in Singapore, says recent cancellations by major pop acts Santana and Moby have rendered advance-ticket selling a “lost cause” because fans now assume future events won’t take place. Singapore’s National Arts Council had been hyping next month’s arts festival with the unfortunate slogan “Be Bitten by the Arts Bug.” If Asia’s economic woes turn out to be contagious, the world may soon have little else to laugh about.
