The Impact of SARS on Asian Economy

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The Impact of SARS on Asian Economy

• Cheng-Mount Cheng
• Vice President
• Financial Markets
• Citibank
• April, 2003

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Summary

• SARS is fast spreading around the world.
• The bulk of cases are in China, Hong Kong and
  Singapore.
• Key medical issue can scientists develop a
  workable diagnostic test quickly enough to avoid
  need for more draconian travel restrictions and
  domestic quarantines?
• Economic consequences will be a function of the
  spread of the disease, not only in individual
  economies, but globally.

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Global Outlook
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Reported Cases Outside China, 3/174/14
Source World Health Organization
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• The atypical pneumonia known as Severe Acute
  Respiratory Syndrome (SARS) is fast spreading
  around the world.
• From March 17 to April 18, the number of reported
  cases outside China increases from 166 to 1979,
  roughly 8 a day.
• There are 27 economies affected by SARS now, with
  probably new affected area adding to the list as
  time passes.
• Nonetheless, the bulk of cases are in China, Hong
  Kong and Singapore.

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Major Affected Area, 4/18
Source World Health Organization
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Best-case scenario for SARS

• The cause of SARS is coronavirus.
• In the next few days, scientists develop a
  diagnostic test that is applicable in real-life
  scenarios (hospitals, airports).
• Production of test begins immediately and reaches
  sufficient scale within 10 days.
• Effectively in slowing the spread of SARS in
  coming weeks and limiting it to HK, Singapore,
  and China Transmissibility not conclusively
  established.
• Doctors find a vaccine for SARS in time for
  winter.
• Chinese authority, cooperating with WHO, is able
  to contain the epidemic inside China.

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Middle-case scenario for SARS

• Scientists successfully develop a SARS diagnostic
  test in the next few days
• Production of industrial quantities of the test
  is achieved in the next 10 days.
• SARSs spread is slowed down thanks to test and
  strict screening at airports and, possibly,
  travel restrictions from infected areas imposed
  by public health authorities in Canada, the US,
  Japan, and Europe
• SARS is a major public health issue in China

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Worst-case scenario for SARS

• Scientists are not able to develop a workable
  diagnostic test quickly enough
• SARS cannot be contained in Hong Kong. The
  disease continues to spread
• The US, Japan, Canada impose bans on flights from
  infected areas and are followed by European
• The epidemic becomes endemic in China

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Economic Consequences A hostage to disease

• The more widespread of the disease, the higher
  the likelihood of quarantine, either domestically
  or internationally.
• Panicked reactions will also played a role in
  line with the intensity of the disease.
• On the demand side reduced activities by
  consumers, either enforced by quarantine or
  spontaneously out of fear of exposure
• On the supply side reduced production due either
  to workdays lost through quarantine, sickness, or
  through death.

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• In the best scenario in which SARS is controlled
  relatively quickly, the chief effect is likely to
  be reduced demand rather than lost production.
• The channels of the effect of SARS on the economy
  are quite similar to those of the war in Iraq
  execpt for changes in oil prices. The spread of
  the virus discourages the movement of people,
  capital and goods.
• Servicestourism, travel, restaurants,
  entertainment venues, retail sales are likely to
  be the hardest hit sector of the economy.
• The impacts on FDI and trade are likely to be
  less significant in the short run.

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Source CEIC
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Assumption

• SARS comes under control over the next four
  weeks. This covers 2 weeks for symptom
  development and additional 2 weeks for contagious
  period.
• The three affected economies under consideration
  are China, Hong Kong and Singapore.
• The chief avenue for economic effect would be
  through weaker services demands. We assume that
  demand for services falls 15 for 5 weeks in
  Singapore, Hong Kong, and the infected parts of
  China (Guangdong, Beijing, Shanghai, Fujian,
  Shanxi, about 50 of total GDP).

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Potential GDP loss from SARS
Source Citigroup Estimates
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Caveats

• We dont take into account of higher spending on
  healthcare services. This should offset our
  estimate of impact a little bit.
• A rebound in services that are delayed rather
  than cancelledbusiness travel, conventions,
  retail purchases. We factor this rebound effect
  in implicitly through the assumption of only a
  15 decline in services demand over the assumed
  quarantine period.
• On the negative side, we assume that quarantines
  and travel bans are limited. If that is not the
  case,

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Asian Outlook
Source Citigroup Estimates