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Virus raises Asian recession fear
By Geoff Hiscock, CNN Asia Business Editor
HONG KONG, China (CNN) -- Economists are warning that a deadly pneumonia spreading across Asia is potentially the most serious event facing the region since the 1997-98 financial crisis. In particular, they are pointing to the disease's economic impact on Hong Kong, which is both a major international transport hub and a key destination for visitors from China. So far, about 60 people worldwide have died from severe acute respiratory syndrome, or SARS, with 15 deaths in Hong Kong alone and at least 34 in China. More than 1,600 others around the world have been infected with SARS and hundreds of residents of a 36-floor apartment block in Hong Kong have been ordered to quarantine themselves at home for 10 days. (Full story) Singapore has seen four deaths and like Hong Kong has ordered schools closed until April 9. Morgan Stanley's Hong Kong-based chief economist Andy Xie says tourism and consumption are the only factors keeping East Asian economies out of recession. "SARS is knocking the wind out of both," he noted in a commentary this week. According to Xie, if the epidemic lasts another two months, a number of Asian economies will slip into recession. He says Hong Kong is most at risk, with Singapore and Taiwan "not too far behind". That view is shared by ABN Amro Asian chief economist Eddie Wong, who told CNN on Tuesday that if the disease cannot be brought under control quickly, it will have a significant impact on Hong Kong and its surroundings. He said Hong Kong was a trade and transport center for a wide variety of manufacturers, including the garment industry. ABN Amro has already cut Hong Kong's economic growth forecast this year by 0.5 percentage points to 3.5 percent, on the basis that SARS will be controlled in the next four weeks. Similarly, economists at Merrill Lynch, Deutsche Bank and JP Morgan estimate the SARS illness could slice between 0.2 and 0.5 percentage points from Hong Kong's GDP, depending on how long the epidemic lasts. Global bank HSBC already had a much more gloomy view of Hong Kong's economy in 2003, with a growth forecast of just 1.6 percent in the wake of the tax-hike 2003-04 budget unveiled in early March. It is worried about what it says is the "sharply deteriorating employment situation", indicated by a jobless rate of 7.4 percent in February. Now the SARS outbreak has added an extra element to Hong Kong's woes. The sharp downturn in tourism numbers, the fall in restaurant patronage as consumers stay home and the delays to investment as multinational business executives defer travel all mean fewer jobs and less consumption. Similar situationA similar situation applies in Singapore, and to a lesser extent in other popular Asian destinations such as Taiwan and Thailand. Morgan Stanley's Xie notes that tourism revenue is equal to 5 percent of Hong Kong's GDP, and the city of almost 7 million people is the prime beneficiary of China's outbound tourism boom. Hong Kong received 6.9 million visitors from China in 2002, up sharply from 4.4 million a year earlier. "Chinese tourism was the factor that kept Hong Kong from recession," Xie said. He is urging Asian governments to "mobilize all their resources" to combat the disease, which he says is the most serious crisis facing the region since the 1997-98 Asian financial collapse. Asian airlines such as Hong Kong's Cathay Pacific have already seen their share prices plummet in recent days as passenger numbers dry up, driven by the twin fears of the war in Iraq and now the SARS outbreak. Big carriers such as Qantas, Japan Airlines, Singapore Airlines, THAI and Korean Air have cut services and suspended some flights as they try to cope with the business downturn. But as IFR Asia chief economist George Worthington noted in his regional outlook this week, the impact of SARS will not show up in economic numbers for several months. "For economies that were only just climbing out of recession, such as Singapore or Hong Kong, the disease is likely to prove a heavy blow to ambitions for 2003 growth," he said.
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