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IMF: Bird Flu Pandemic Could Temporarily Hurt Global Economy

The International Monetary Fund says a global bird flu pandemic is likely to hurt the world's economy significantly if it is severe. But it predicts that the consequences would be temporary. The global financial agency is encouraging businesses to develop emergency plans to deal with a pandemic.

In a new report, the International Monetary Fund says the global economic impact of a bird flu pandemic would vary depending on its severity. IMF financial systems expert David Hoelscher says there is no way to forecast this.

"There is a great deal of uncertainty about the virus," he said. "We don't know if it will mutate to a form that can be transmitted human to human, and we don't know how deadly this virus might be if it were to mutate, and we really can't specify with any certainty what the economic and financial impact might be."

The International Monetary Fund does say that if a flu pandemic were severe, the biggest impact would be due to absenteeism from the workplace. This would disrupt trade, transportation, utilities, and the banking and health systems. Absenteeism would also cause consumer demand to plummet, reducing business investment and cash flows between countries. In addition, to control the virus, countries might impose restrictions on exports.

This would cause a drop in commodity prices, although this might be offset by potential supply disruptions of key commodities like oil.

The IMF links the amount of economic dislocation to the severity of a flu pandemic. It says rapid global transportation and mass communication might increase some risks, while better public health systems and drugs might act in the other direction.

But whatever the level of economic disruption, the agency says the impact would be temporary. IMF researcher Sandy Mackenzie suggests that in an economically stable country, output might decline for only one quarter of the year, with activity resuming quickly the next.

"Because the vast majority of the people recover, people would be back on the job soon and supply would rebound," she said. "Similarly, consumer demand would rebound as people purchase things that they had postponed, like consumer durables."

International Monetary Fund experts say the best business and financial institution contingency planning has occurred in Hong Kong, Singapore, and Canada - places hit hard by sharp tourism drops in 2003 because of the outbreak of SARS, the Severe Acute Respiratory Syndrome. It notes that financial institutions, central banks, and regulators have stepped up their risk planning in recent years in many advanced economies with activities such as identifying back-up teams at alternate sites.

But the IMF says business planning for a bird flu pandemic varies greatly around the world, and cross-border cooperation is at an early stage.

The IMF's Sandy Mackenzie says the fund staff is collecting and spreading information about the elements of good business planning among its member countries.

"We view the Fund's program, really, as a kind of insurance," she said. "We see this business continuity planning as a form of comparatively cheap insurance."