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Swine flu casts shadow over global economy

Uncertainty over the swine flu outbreak  has raised fears that that the spread of the virus could harm trade and tourism and undermine businesses just as they begin to rally.
Singapore Swine Flu
A 'handwashing' campaign highlights hygiene importance at the Tan Tock Seng Hospital, Singapore. Singapore is currently free from swine flu infections.Wong Maye-e / AP
/ Source: The Associated Press

Uncertainty over the swine flu outbreak cast a shadow over the struggling global economy Monday, raising fears that that the spread of the virus could harm trade and tourism and undermine businesses just as they begin to rally.

Airline stocks plummeted as major travel companies in Europe and Asia cancelled tours to Mexico, the epicenter of the outbreak. Pharmaceutical companies rallied on expectations that demand for anti-viral drugs may surge to deal with any pandemic.

It's far from clear how bad the outbreak will be, but any blow to travel and trade could eat away further at world gross domestic product, already forecast by the International Monetary Fund to shrink 1.3 percent this year in the first decline since World War II. Top finance officials meeting in Washington over the weekend said recovery could emerge by the end of the year.

"On top of a synchronized global financial and economic crisis, an outbreak of swine fever is the last thing we need just now," said Neil Mackinnon, chief economist at ECU Group.

The virus is suspected in up to 103 deaths and 1,600 more cases in Mexico while 40 cases were confirmed in the United States and six in Canada.

Both Swiss drug maker Roche Holding AG — the maker of Tamiflu — and GlaxoSmithkline PLC, which manufactures the Relenza drug, rose 4 percent in European trading. Gilead Sciences Inc., which developed Tamiflu and receives royalties from Roche, rose 4 percent.

Not all countries have significant stockpiles of the Tamiflu and Relenza. It will take months for pharmaceutical companies to produce a vaccine, starting from a seed virus.

Businesses went over their crisis plans and weighed up the potential lost productivity if the virus spreads and work forces are crippled. London-based risk management company Business Forums International said its phones ran hot on Monday as hundreds of companies made inquiries about contingency plans to deal with the absenteeism that that could come if the outbreak turns into a worldwide pandemic.

BFI program manager Elizabeth Smith said that many businesses were better prepared since the bird flu scare in early 2006 put pandemic risks higher on their agenda — the group has held 20 conferences in the past three years involving some 10,000 businesses across Europe, albeit focused on fears of a bird flu, rather than swine flu, outbreak.

Meanwhile, tourism operators across Asia and Europe cancelled tours to Mexico after EU health officials urged Europeans on Monday to postpone nonessential travel to the United States and Mexico.

TUI Travel, Europe's biggest tour operator, said it was suspending all trips to Mexico City through May 4. Japan's largest tour agency JTB Corp. has suspended Mexico tours until at least June 30.

Irina Tyurina, a spokeswoman for the Association of Russian Travel Agencies, said that around 30 percent of people booked to travel to Mexico in early May had cancelled their plans. Tyurina said that Russian travel agencies were in talks with their Mexican counterparts to receive refunds for hotels and services.

The fears about the impact on the global economy were reflected on stock markets around the world, which fell in Asia; European stocks slid but recovered the lost ground on news of General Motors' restructuring plan in the United States.

"This is an already dangerous time for financial markets so to have this specter developing right now is certainly just cause for some very real concern," said CMC Markets analyst James Hughes, adding that the outbreak could undermine the fragile confidence beginning to return to global stock markets since the lows of early March.

In Asia, the disease brought bad memories of the SARS epidemic in 2003, which spread rapidly via air travel and devastated Asia's tourism industry, cutting annual international arrivals by more than 15 million and costing the region $11 billion.

Fearing a replay, investors sold down airlines, many of them already suffering losses from depressed international travel amid the economic crisis. Lufthansa fell 9.2 percent, British Airways was 7.75 percent, Hong Kong's flagship carrier Cathay Pacific dropped 8 percent, while Australia's Qantas Airways lost 4 percent.

"We are in the midst of an industry downturn and this is certainly unwelcome," said Andrew Herdman, director-general of Kuala Lumpur-based Association of Asia-Pacific Airlines, which represents one-fifth of global passenger traffic and one-third of global cargo traffic. "But this is a potential public health emergency and it will have to be a priority."

In the U.S., American Airlines owner AMR Corp. and United Airlines' parent company UAL Corp. slumped around 15 percent after the open. In Europe, Deutsche Lufthansa AG fell 9 percent, while British Airways PLC was down 8 percent.

The risk that the share slump could spread further as more industries become affected was highlighted by a 5 percent fall in the stock price of British food company Cranswick, which has just bought a domestic supplier of pork for the country's biggest retailers.

Despite the lack of any evidence that swine flu can be transmitted through eating meat from infected animals, consumer concern is likely to result in falling demand.

Japanese restaurant chain Matsuya Foods Co. said it will temporarily suspend as a precautionary step some pork dishes that use imported Mexican pork. Pharmaceutical companies rallied on expectations that demand for anti-viral drugs may surge to deal with any pandemic.