Despite the growing clamor around Covid-19, the world is no stranger to outbreaks. In fact, over the last 30 years, the number of infectious disease outbreaks has increased with trade and travel. According to World Bank estimates, the annual global cost of moderately severe to severe pandemics is approximately $570 billion, or 0.7% of the global income.
This latest coronavirus brings to mind the other two that have caused global upheavals this century: SARS (Severe Acute Respiratory Syndrome) and MERS (Middle East Respiratory Syndrome). All affected the travel, tourism, and leisure industries significantly. Fear of catching the infectious diseases discouraged people from visiting places with high foot traffic. Schedules, plans, and decisions were postponed, invariably hurting cruise liners, airlines, event facilities, hotels, and tour operators.
This mass panic also caused more damage than the zoonotic viruses themselves. An October 2019 paper by the Asian Development Bank mentions the economic losses due to SARS to be “driven by public avoidance, which contributed to a disproportionate aggregate disease prevention cost.” The World Economic Forum (WEF) echoes this view in an article on global health threats: “Remarkably, estimates suggest that only 39% of the economic losses from outbreaks are associated with direct effects on infected individuals. Rather, the bulk of the costs results from healthy people’s change of behavior as they seek to avoid infection.”
Here’s a more comprehensive breakdown:
|Comparisons||SARS (Severe Acute Respiratory Syndrome)||MERS (Middle East Respiratory Syndrome)||Covid-19 (also known as SARS-CoV-2 and 2019-nCoV; formerly known as nCoV or novel coronavirus)|
|Period of outbreak||2002-2003||2012-2015||2019-present|
|Source and transmission||The primary way that SARS appears to spread is by close person-to-person contact. It is caused by a coronavirus that made a species jump from bats to humans through the intermediate host of farmed civet cats bred for human consumption in China.||Most human cases have been attributed to human-to-human infections in healthcare settings, but current scientific evidence suggests that dromedary camels are a major reservoir host for MERS-CoV and an animal source of MERS infection in humans.||Like the other two coronaviruses, it originated in animals and then migrated to humans. Many of the initial cases frequented the Huanan seafood wholesale market, which also sold live and newly slaughtered animals. China’s national health commission has confirmed human-to-human virus transmission.|
|Symptoms||Symptoms include high fever, chills, headache, a general feeling of discomfort, and body aches. Some people also experience mild respiratory symptoms, diarrhea. Most develop pneumonia. Up to 20% require mechanical ventilation.||Symptoms include fever, cough, and shortness of breath. Pneumonia is common, but not always present. Gastrointestinal symptoms like diarrhoea have been reported. Some laboratory-confirmed cases are reported as asymptomatic.||Symptoms include fever, cough, and shortness of breath. Reported illnesses have ranged from mild symptoms to severe illness and death.|
|Vaccine and treatment||There is currently no cure for SARS, but research to find a vaccine is ongoing. Treatment is mainly supportive.||No vaccine or specific treatment is currently available; however, several vaccines and treatments are in development. Treatment is supportive and based on the patient’s clinical condition.||There is currently no vaccine to prevent Covid-19. Treatment is mainly supportive. For severe cases, treatment includes care to support vital organ functions.|
|Countries affected||From China, it quickly spread to other Asian countries. There were also a small number of cases in several other countries, including 4 in the UK, plus a significant outbreak in Toronto, Canada.||27 countries have reported cases of MERS-CoV. The largest outbreaks were seen in Saudi Arabia, United Arab Emirates, and the Republic of Korea.||28 international locations have confirmed cases of the infection. The 10 most affected places include mainland China, Japan, South Korea, Italy, Iran, and Singapore.|
|Infections||8098 people||2 494 people||90899 people as of March 03, 2020, 12:15 p.m. Philippine time|
|Deaths||774||858||3116 as of March 03, 2020, 12:15 p.m. Philippine time|
Here’s how different industries were affected by these outbreaks:
|Industry||SARS (Severe Acute Respiratory Syndrome)||MERS (Middle East Respiratory Syndrome)||Covid-19 (also known as SARS-CoV-2 and 2019-nCoV; formerly known as nCoV or novel coronavirus)|
|Sports||The Republic of Korea’s Ministry of Education and the Ministry of Health and Welfare recommended students to refrain from school activities such as field trips and sports events.||Covid-19 has cut a swathe through the 2020 Asian sporting calendar, with high-profile postponements including the Formula One Chinese Grand Prix and the Hong Kong Sevens rugby tournament. South Korea’s K-league has also postponed the start of the new football season.|
|Travel||Daily arrivals in Hong Kong plummeted from an average of around 27,500 passengers to roughly 5,000 passengers per day at the end of April 2003. Airlines such as Cathay Pacific canceled over 45% of their scheduled flights during the same month, and ticketing revenues plunged from HK$120 million ($15.3 million) to HK$4 million ($510,000) in the first two weeks of April.||Philippine authorities are considering the possibility of a travel ban to and from South Korea. The Department of Health is urging Filipinos to postpone their travel to some parts of South Korea that have seen a spike in the number of people with coronavirus infection.|
|Tourism||The irrecoverable losses to the tourism sector in Beijing were estimated to amount to around $1.4 billion, or 300 times the direct cost of medical treatment for SARS cases in the city.||South Korea saw a 41% reduction in the number of tourist visits to the country, which caused the Bank of Korea to cut its benchmark interest rate to a record low.||The US State Department on February 24 advised cruise ship travelers to or within Asia to reconsider their trips. Moreover, the department warned that repatriation flights organized by the US government “should not be relied upon as an option for US citizens under the potential risk of quarantine by local authorities.” This statement came in the heels of the hundreds of passengers (including at least 14 Americans) who were infected with Covid-19 in the cruise ship Diamond Princess.
The virus caused the cancellation of the last two days of the Venice Carnival in Italy. Milan’s Salone del Mobile, the world’s largest and most important furniture fair, has likewise been postponed to June 16-21.
|Hospitality||25 restaurants in Hong Kong closed within the first two weeks of April and over 1,600 restaurant staff became unemployed. As many as 16,000 staff were forced to take leave or pay cuts.
The SARS outbreak in Canada caused $4.3 billion in losses to its accommodation and food service sector.
|Estimated losses in the accommodation, food and beverage service, and transportation sectors in South Korea associated with the decrease of non-citizen visitors were US$542 million, US$359 million, and US$106 million, respectively.|
|Construction and manufacturing||The 2002-2003 SARS outbreak was centered in key electronics production tracts in China, where investors from several countries – including Japan, Korea, and Taiwan – have financed factories.
Meanwhile, Singapore’s government quarantined 305 employees of a local Motorola plant at their homes when an assembly-line worker was found to be infected with SARS. As a precaution, Motorola asked more than 500 night-shift employees not to report to work.
|Singapore’s construction firms are seeking legal advice to use the coronavirus outbreak as cause for not fulfilling their contracts, as the government turns away or quarantines Chinese workers.
Hong Kong’s construction is also expected to slow due to delays in receiving building materials from the mainland.
This disruption to manufacturing and logistics extends to Australia, where Chinese direct and indirect products account for up to 20% of materials used in building sites.
More supply chain shortage situations: Fiat Chrysler Automobiles NV announcing on February 14 that “it is temporarily halting production at a car factory in Serbia because it can’t get parts from China.” Hyundai made a similar statement and said it “decided to suspend its production lines from operating at its plants in Korea … due to disruptions in the supply of parts resulting from the coronavirus outbreak in China.”
Sources: WHO, CDC, World Economic Forum, AFP, ScienceDirect, Reuters, Nikkei Asian Review, ADB, QuayCo, CNN, Liebert, Inc., Time, Dezeen, The Channel Company, HBR
Some sectors typically stand to benefit from disease outbreaks, although the picture is not black and white, notes The EIU in its coronavirus outbreak webinar last February 12. Here are the industries that may experience positive economic outlooks under such a scenario:
- Pharmaceuticals and medical devices – demand for medications, vaccines, personal protective equipment, and other related supplies will strengthen
- E-commerce – will experience an increase in sales as consumers shun brick-and-mortar stores to avoid infection
- Online services – expenditure in online entertainment, education, and other services such as telecommuting software will spike
- Insurance – will bring about long-term awareness as people become more interested in health and business risk insurance packages
Public health emergencies can cause significant economic losses in multiple industries. They can impact even companies without direct operations in affected areas. There is a need to identify the sectors with the most potential for economic losses to encourage the development of preparedness plans and prioritize emergency funding during an outbreak.
WEF makes the case for the private sector playing a bigger role in the traditionally public sector-led disaster response. Many companies may be compelled to act out of a sense of corporate social responsibility, but it is also good business to intervene and protect operations and markets against these biosecurity threats. The WEF’s Managing Risk Epidemics report presents five key principles for integrating public-private cooperation in order to mitigate the social, economic, and business disruptions associated with disease outbreaks:
- Preparedness – address known challenges and set up mechanisms for collaboration before a crisis strikes to facilitate a rapid, well-coordinated response
- Value – build collaborations at the intersections of private-sector business interests and public-sector needs
- Trust – create trust-based relationships in advance of an emergency to enable better ways of working during an outbreak
- Agility – keep organizational processes and structures flexible for quick action in an emergency
- Innovation – encourage the ongoing development of innovative ideas and solutions to improve emergency preparation, response, and recovery efforts
Building collaborations and networks through public-private cooperation is critical to enable a more effective response to public health emergencies.
Overall, the largest economic impact of SARS was related to overall GDP and investment, says Brown and Smith in their paper The economic impact of SARS: How does the reality match the predictions? (2008). It also put a dent on the hotel restaurant and tourism sectors. The vast majority of losses were experienced in mainland China and Hong Kong, with more minor effects in Canada and Singapore.
“The said losses, however, rarely affected more than one quarter’s data and often only adversely affected the economy for one month. Additionally, in many cases the losses were succeeded by often equivalent gains in the following month, quarter, or year, such that over a year the effect was marginal at most,” they add. The impact from SARS was thus short-term in the places where it occurred.
MERS, on the other hand, had a considerable impact on South Korea’s economy – even though nearly 90% of infections originated in the Kingdom of Saudi Arabia. In his paper Costly Lessons From the 2015 Middle East Respiratory Syndrome Coronavirus Outbreak in Korea, Sang-il Lee attributes this partly due to a failure in risk communication by the Korea Centers for Disease Control and Prevention (2015).
This resulted in the public’s overreaction to the outbreak and a loss of US$10 billion, which cut into their gross domestic product growth rate in 2015. The enormous socioeconomic cost highlights how crucial risk communication is during infectious disease outbreaks.
As for Covid-19, the global economic effects are likely to be larger than in 2002-2003 – even if this latest virus turns out to be comparable to SARS, shares Hayat, et al, in their January 2020 Rabobank article.
China has larger and tighter linkages with the global economy nowadays, and represents close to 20% of the world’s GDP. China-dependent industries such as consumer electronics, pharmaceuticals, and automotive will struggle to find alternative suppliers.
Economies today are more interconnected than they were 17 years ago. If the coronavirus outbreak persists, the domino effects will be felt through global growth, trade, and value chains as well as in specific sectors like transport and tourism. The Economist Intelligence Unit’s baseline scenario is that the public health emergency within China will be under control by the end of March. It is planning to cut their real GDP forecast for China this year to 5.4% from the current 5.9%.