/ 27 April 2009

Flu fears dampen talk of tentative world recovery

Fears that any tentative green shoots in the global economy could be trampled by a deadly outbreak of swine flu put Asian markets on edge on Monday, after world policymakers said over the weekend that a recovery could begin later this year but plenty of downside risk remained.

The virus has killed more than 100 people in Mexico, and infections have been reported in the United States and Canada, with possible cases in Europe, Israel and New Zealand. The World Health Organisation (WHO) has declared the flu a ”public health emergency of international concern” that could become a pandemic.

”There are fears that ultimately it could lead to reduced travel and tourism, reduced stays in hotels, adding to the slowdown globally and specifically for the countries involved,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. Analysts said any worldwide pandemic could hit poor countries particularly hard, due to lower healthcare standards.

On Sunday global finance and aid ministers warned at a meeting in Washington that the world’s poor already faced a human catastrophe from the impact of the financial crisis.

Ministers from the 185 member countries of the World Bank and International Monetary Fund (IMF) called on rich nations to accelerate aid to the developing world to prevent disaster.

”We must continue to act in real time to prevent a human catastrophe,” said World Bank President Robert Zoellick.

The World Bank said the global crisis had been a major setback to world poverty reduction. It said the crisis would push 53-million more people into extreme poverty in 2009, and cause 200 000 to 400 000 more infant deaths each year.

”These numbers will rise if the crisis deepens and growth in developing countries falters further,” it said.

Mexican Finance Minister Agustin Carstens said it was too early to judge the impact of swine flu on the country’s economy.

”This issue can have an important impact on the economy, although the most important impact is the one on human life and human well being,” he said.

”At this stage, without ignoring that this is a very serious matter and that it has a high potential for disruption, I would say it’s too early to give a more concrete opinion.”

Oil dropped more than 2% towards $50 a barrel in early trading on Monday on fears that swine flu could spread further. ”The swine flu in Mexico is also causing some risk aversion in the markets and is already weighing on the Dow,” said Ben Wesmore, analyst at National Australia Bank.

Asian stocks were mixed, supported by optimistic comments from world leaders over the weekend that the global economic and financial crisis may be past its worst, but edgy over flu risk fears — although pharmaceutical stocks were up.

Signs of recovery?
The swine flu outbreak came just when more world policymakers were proclaiming the start of tentative economic recovery.

”Six or eight weeks ago, there were no positive statistics to be found anywhere. The economy felt like it was falling vertically. Today, the picture is much more mixed,” Lawrence Summers, economic adviser to US President Barack Obama, said on Sunday.

”I think that sense of unremitting freefall that we had a month or two ago is not present today. And that’s something we can take some encouragement from.”

The Group of Seven rich nations said on Friday that the world economy was showing early signs of recovery.

”Economic activity should begin to recover later this year amid a continued weak outlook, and downside risks persist,” G7 finance ministers and central bankers said in a joint statement.

Youssef Boutros-Ghali, who chair’s the IMF’s steering panel, said that ”things are beginning to look up”.

”Carefully, cautiously, we can say there is a break in the clouds,” Boutros-Ghali said.

But the meeting appeared to make little progress on the thorny issue of giving emerging economies, particularly the ”BRIC” countries — Brazil, Russia, India and China — a greater say in running the IMF. China and Brazil say if they are to contribute more money to the IMF, they want more influence.

The US backed calls for more representation for emerging economies.

”This is essential to strengthening the IMF’s legitimacy, ensuring that it remains at the centre of the international monetary system,” said Treasury Secretary Tim Geithner. But several European nations opposed the move.

Although the G7 saw signs of recovery, many countries continue to cut their growth forecasts.

On Monday Japan’s government cut its forecast for GDP in the year to next March to a 3,3 fall from a previous estimate of zero growth. — Reuters