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Oxford Economics Study Predicts 3% Cut In Uk Gdp As Swine Flu Takes Hold

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Economic toll: Pandemic to cost Britain £42bn

£42bn losses are predicted to hit Britain as a result of a three per cent fall in gross domestic product (GDP) due to the swine flu pandemic, according to a new report from the Oxford Economics think tank, due to be released tomorrow. Researchers claim that swine flu could threaten already fragile businesses and put further strains on financial markets in what could become a "vicious cycle that postpones the recovery".

A $2.5 trillion cut in global GDP is a possibility – with a flu outbreak in the autumn hitting the world economy just as it starts to recover from the credit crunch.

http://www.independent.co.uk/life-style/he...on-1711552.html

I found this pdf report by the group:

http://www.oef.com/free/pdfs/swineflu(jun09).pdf

Could swine flu tip the world into deflation?

Oxford Economics

June 2009

Health experts agree that while the current flu epidemic that started in Mexico in April 2009 may weaken during the

summer, it could re-appear in the autumn, possibly in a stronger form. Besides the assessment of the likelihood of

such a pandemic breaking out that relates to medical and health policy factors, it is useful to evaluate the possible

economic impact should a pandemic occur. Using historical benchmarks of previous flu pandemics and of the SARS

episode, we have estimated the economic impact of a global flu pandemic.

Under reasonable assumptions about infection and death rates (30% and 0.4% respectively), the duration of the pandemic (six months from October 2009) and responses by households and businesses to the pandemic, we estimate that world GDP would be cut by around US$2.5 trillion in the six months of the pandemic, or 3.5% of 2009 GDP.

The channels through which a swine flu pandemic would affect the economy are manifold. They include supply effects as employees cannot go to work due to illness or death. They also include demand effects. In particular, consumption of discretionary goods and services such as restaurants or tourism is likely to be cut as consumers (and business travellers) stay away from crowded places in order to avoid infection. In addition, heightened uncertainty about economic developments is likely to make businesses postpone investment. Increased uncertainty would also have a negative impact on financial markets, bringing lower share prices and higher market interest rates than warranted by the economic situation.

Due to the global nature of the pandemic, all countries and regions are affected. Our scenario assumes that the

pandemic starts in North America. The US economy is therefore hit relatively harder than other developed

economies, with a GDP loss of nearly 5% of 2009 GDP in the six-month pandemic period. However, the Eurozone

and the UK would also lose around 3% of 2009 GDP.

Different industries would be affected differently. Those selling non-essential goods and services would probably be

hardest hit. In particular, as the SARS experience showed, travel and tourism is likely to fall sharply (international

travel to Asia was down by around 60% during the SARS outbreak).

Weaker demand would keep inflation rates lower for longer. At first, the drop in inflation is limited due to fixed wage

contracts. By 2010Q1, world consumer price inflation is around ½% below the baseline. But the disinflationary trend

continues and deepens as rising unemployment and lower demand exert downward pressure on prices and wages.

By the end of 2010, world CPI inflation is around 1.5% below baseline, just above 1%. In this scenario, Japan is in

deflation and Chinese inflation falls to zero.

The lower inflation environment would allow monetary policy authorities to postpone planned interest rises. However,

in many countries, policy setters would have no room to support the economy as interest rates are at or very close to

the lower bound. For instance, in our baseline forecast, US official rates are at 0.25% in 2010Q1 and the ECB and

the Bank of England rates are unchanged from now at 1% and 0.5% respectively. With fiscal balances already recording very large deficits (around 9% of GDP in the US, more than 5% in the Eurozone and nearly 12% in the UK in 2009), there is also very little room for fiscal support.

Once the pandemic wears off, the world economy may gradually recover. At least some of the pent-up demand that builds up during the pandemic would be realised, pushing 2011 GDP growth above our baseline forecast.

However, there is a significant risk that the world economy does not return to normal. The fact that the pandemic would occur just when the economy starts to recover could mean that the impact is longer-lasting than suggested above. Rather than catching up on postponed spending, households may raise savings for a longer time. In addition, companies that are already fragile after the recession may succumb to this new shock. Another factor that makes a worse scenario quite likely is the fact that the pandemic would occur around Christmas, when a lot of discretionary spending takes place.

In this case, consumer spending would remain lower for longer as households prefer to keep higher savings rates. Travel and tourism would remain depressed for longer. As unemployment rates keep rising well past previous peaks, downward pressure on wages would build. And financial markets would experience another bout of protracted malfunctioning.

We estimate that under such a scenario the world economy would fall into deflation. CPI inflation would fall to -1% in 2011. World GDP would be down nearly 8% in 2010 and growth would only return to positive quarter-on-quarter rates

at the end of 2010.

In conclusion, while the world economy should in principle be able to cope with a swine flu pandemic, there is a

significant risk that the pandemic might trigger a set of unfavourable behavioural changes that tip the world into

deflation. A flu outbreak in the autumn would hit the world economy just as it starts to recover from the credit crunch.

It would prolong the rise in inflation, threaten already fragile businesses and put further strains on financial markets

and fiscal balances. This could generate a vicious cycle that postpones the recovery for another couple of years.

This could be an unwelcome wild card for the recovery.

Interesting times.

Edited by MOP

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you couldn't make this $hit up!

or could you??

:angry:

No you could not-pure unadulterated bullshite Im afraid, especially given how Q1 alone of this year has unfolded:

192.gif

We were totally and utterly screwed long before swine flu reared it's ugly head and without even considering it's effects on top we were headed for a facking sight more than 3% drop in GDP by year end if the economy continues on it's present trajectory.

Still, Im sure the politicos would love to be able to conveniently pin the blame for the recovery not materialising on swine flu....

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"Economic toll: Pandemic to cost Britain £42bn"

Don't forget the £20bn mentioned the other day for flood defences over the next 20 years.

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No you could not-pure unadulterated bullshite Im afraid, especially given how Q1 alone of this year has unfolded:

192.gif

We were totally and utterly screwed long before swine flu reared it's ugly head and without even considering it's effects on top we were headed for a facking sight more than 3% drop in GDP by year end if the economy continues on it's present trajectory.

Still, Im sure the politicos would love to be able to conveniently pin the blame for the recovery not materialising on swine flu....

This group seems to be independent (unlike government funded think tanks etc):

About Oxford Economics

Economics matters. Combining skilled analysis with detailed information on the global economic environment creates a firm base for your decisions.

Oxford Economics was founded in 1981 as a commercial venture with Oxford University's business college to provide economic advice, forecasts and analytical tools to international institutions, governments and blue-chip companies.

Building on these foundations, we are now an independently-owned world-leader in high quality, quantitative analysis and evidence-based business and public policy advice.

http://www.oef.com/OE_About.asp

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I would imagine if we got to a pandemic it would be far worse.

Who would use the tube in a pig flue pandemic?

How would they get to work?

Etc

However I would imagine the west would play down pig flue and advise people to continue as they normally do. That way a lot more may catch it but the economy isn’t totally fracked.

In the uk only 1 person has died out of an estimated 3-4000 infected.

If most of us got it and the death rate stayed the same it would “only†kill some 15-20k people which is not a lot. Presumably normal flue kills more and 700k or so people die per year of old age and other causes so 20k vs 700k isn’t a lot.

Unless the death rate picks up we will likely continue as normal with minimal impact on the economy.

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I would imagine if we got to a pandemic it would be far worse.

Who would use the tube in a pig flue pandemic?

How would they get to work?

Etc

However I would imagine the west would play down pig flue and advise people to continue as they normally do. That way a lot more may catch it but the economy isn’t totally fracked.

In the uk only 1 person has died out of an estimated 3-4000 infected.

If most of us got it and the death rate stayed the same it would “only†kill some 15-20k people which is not a lot. Presumably normal flue kills more and 700k or so people die per year of old age and other causes so 20k vs 700k isn’t a lot.

Unless the death rate picks up we will likely continue as normal with minimal impact on the economy.

This type of flu will affect people of working age unlike the normal flu which gets the elderly the worst.

I don't think it's to do with deaths either, it's more likely impact will be on business loss of earnings due to time taken off work and workplaces having to temporariily shut-down. (like the schools recently).

If 50% of the workforce has to take 2 weeks off work, that equates to a lot of GDP (I think).

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I would imagine if we got to a pandemic it would be far worse.

Who would use the tube in a pig flue pandemic?

How would they get to work?

Etc

However I would imagine the west would play down pig flue and advise people to continue as they normally do. That way a lot more may catch it but the economy isn’t totally fracked.

In the uk only 1 person has died out of an estimated 3-4000 infected.

If most of us got it and the death rate stayed the same it would “only†kill some 15-20k people which is not a lot. Presumably normal flue kills more and 700k or so people die per year of old age and other causes so 20k vs 700k isn’t a lot.

Unless the death rate picks up we will likely continue as normal with minimal impact on the economy.

Simple answer: it depends.

If swine flu is like 'normal' flu and just takes out the elderly and infirm, then it's not a huge issue. If it does become a freak 1918 style flu that kills those who are strongest (via massive over-stimulation of the immune system, if you are interested) then the economic damage could get nasty. Of course, if the vaccine makers get ahead of the problem then it won't be an issue at all.

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Guest Parry
Is this 3% contraction on top of any other potential contraction?

If there is a pandemic the effects on GDP I think would be far worse. This seems an underestimate.

Economic realities.

Thai's a case in point.

Exports down 26-27%. When 60% of ALL economic activity is based on exports. Tourism is much of the rest, including the black economy. Down 50%+.

Economies are shrinking by 20% at least.

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Guest DissipatedYouthIsValuable

The economic toll of an invalid commerical monetary system costs a lot more than any flu.

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Economic realities.

Thai's a case in point.

Exports down 26-27%. When 60% of ALL economic activity is based on exports. Tourism is much of the rest, including the black economy. Down 50%+.

Economies are shrinking by 20% at least.

Those figures are huge, can I ask what is the govt reporting GDP as?

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Here ya go!

http://news.bbc.co.uk/2/hi/business/8108859.stm

And it'll be way worse in reality. Thai govt is pure BS.

Much like UK's.

http://thaicrisis.wordpress.com/category/e...my/gdp-economy/

The GDP report for Q1 has been published by the NESDB (here).

The main information is : the thai economy shrank 7,1 %, compared to the first quarter 2008. In Q4 2008, the drop was 4,2 %.

Therefore, we are in recession (classic definition is 2 quarters with negative growth).

The official analysis is that the thai economy has bottomed out, AKA it can only get better the following quarters.

This is wrong.

I wrote on my previous report :

On Q1 2009, deflator will be the same than on Q4 (more or less)… While the contraction of the economy is worsening… therefore the comparison quarter-on-quarter between Q1 2009 and Q4 2008 is going to be really bad (like in so many other countries).

Therefore, the annualized GDP growth rate is going to be really bad on Q1…

I was spot on : deflator on Q1 was 2,2 % (2 % on Q4)… So if we calculate the annualized GDP rate (difference between Q4 and Q1, times 4), we get a striking -13 % !

Now, let’s have a look on 3 components of the GDP (real GDP = inflation removed) :

gdpq1report1.gif

This doesn't look good.

I bet they are just praying it's bottomed out.

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Guest Parry
http://thaicrisis.wordpress.com/category/e...my/gdp-economy/

gdpq1report1.gif

This doesn't look good.

I bet they are just praying it's bottomed out.

This country's going 'back to the land'. Seriously. Stone age stuff. They were reliant on the West for their 'growth'. Everything not rice or chicken in fact.

Yet, we'll get the blame, because nothing is ever their fault. They had it coming to be honest.

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100,000 New Cases Of Swine Flu Per Day In The UK BY August

4:00pm UK, Thursday July 02, 2009

The Health Secretary says the Government expects 100,000 new cases of swine flu to be diagnosed each day by the end of August.

Andy Burnham told MPs that the figure was "a projection" but added that scientists expected a "rapid rise" in cases over the summer.

"Cases are doubling every week and on this trend we could see over 100,000 cases per day by the end of August," he said.

Mr Burnham confirmed there were now 7,447 confirmed cases of swine flu in the UK and a significant number of people had been hospitalised.

http://news.sky.com/skynews/Home/Politics/...e_End_Of_August

It would be interesting to see how this projection was calculated.

The average work absence is 10 days for swine flu according to Sky. So that's 100,000 people/day requiring time off work, and that's before the winter even starts!

What will this do to the UK economy? :blink:

Edited by MOP

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On the plus side, when the weak and feeble are weeded out, the survivors will be able to reap the rewards of less dead wood :P slowing the conomic system

Slight problem there. The vast majority of deaths are in the under 60s so far, with around half having no previous medical conditions.

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Swine flu reminds me of the SARS and bird flu panics. Few deaths, mass hysteria, extreme measures taken, lots of profit for pharmaceutical companies and their shareholders. Ad infinitum for almost a decade.

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Swine flu reminds me of the SARS and bird flu panics. Few deaths, mass hysteria, extreme measures taken, lots of profit for pharmaceutical companies and their shareholders. Ad infinitum for almost a decade.

Bird Flu

262 deaths worldwide in 7 years.

http://en.wikipedia.org/wiki/H5N1

Swine Flu

568 deaths worldwide in 10 weeks.

http://flutracker.rhizalabs.com/

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I'm wondering if a partial shutdown of the economy would cause a statiscal blip which would gurarantee the end of the recession in Q3 2010.

<edit>

erm that would be year on year so as another poster said on a different thread, Q1 2010.

Edited by slurms mackenzie

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