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Economists Brace for 'Devastating' Consequences of SARS - 2003-04-17


Economists are warning that the continued spread of Severe Acute Respiratory Syndrome, will have devastating consequences on the region's economy. Hong Kong's Convention and Exhibition Center is unusually quiet for this time of year. Normally, thousands of foreign buyers would be flocking to trade fairs at the center to buy products from Asian manufacturers.

But the outbreak Severe Acute Respiratory Syndrome has kept them away. Countries around the world are warning their citizens to avoid Asia because of fear they might contract SARS and carry it home. In some cities, fear of the severe, flu-like disease and the pneumonia it causes means people are not shopping, dining out or traveling.

The result is a plunge consumer sales, a slow down in banking deals and a virtual halt to travel to some of Asia's business and tourism centers. Retailers in Hong Kong complain that sales have dropped at least 50 percent since the outbreak began in March.

The worst hit places are Hong Kong and Singapore, the regional financial centers, and China, a huge manufacturing base. Hong Kong and China together account for two-thirds of the more than 3,000 SARS victims around the world.

SARS is forcing investment banks and governments to cut their forecasts for gross domestic product growth in Asia.

"Our calculation shows that in Singapore, for instance, a 10 percent drop in private consumption could shave some one percentage point off nominal GDP," said Song Sen Wun, a regional economist for GK Goh Securities in Singapore. "In Hong Kong, a 10 percentage point drop in private consumption could shave like, 0.9 point off GDP."

Economists warn that if governments cannot contain the spread of the disease or boost public confidence soon, the economic toll will grow.

Some experts say it will not be long until SARS eats into Asia's productivity. When a worker at a Singapore factory that makes phones for the U.S. company Motorola came down with SARS, all of the workers were quarantined, disrupting production.

Analysts worry about similar scenarios in southern China, where the products of some of world's biggest companies are made. Medical experts think SARS originated there and the virus is still infecting many in the area.

Paul Coughlin, Hong Kong managing director of the international credit rating agency, Standard & Poor's, said that as SARS cuts revenues, companies may find it difficult to borrow money to finance their operations.

"This reduction in consumption and travel, if it persists for a matter of months, clearly that would have a significant impact on companies that we follow, and may indeed place pressure on some of the ratings of some of those companies," he said.

Some economists worry that SARS could curtail the region's fastest growing economy, China.

Many economists have downgraded their forecast of China's economic growth, officially set at 7 percent this year. Some argue that because of China's greater integration with the region, its neighbors will also suffer.

But Pamela Wong, an economist with MMS International in Singapore, thinks any disruption in China's trade with the rest of Asia may not last long.

"I think at the moment [the] relationship between China and Asia has not been adversely affected," Ms. Wong said. "People avoiding China or avoiding trading with China is just temporary."

Some analysts say the nature of the SARS problem means that it is difficult to predict the bottom in this crisis.

A few governments have already announced grim economic news. Singapore has drastically scaled down its economic growth target to between 1.5 to 2.5 percent from between two to five percent. Hong Kong has ruled out meeting its three percent growth target. And even relatively unscathed Thailand warned that SARS would cut about one percentage point off economic growth.

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