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World Bank chief warns of SARS fallout

April 8 2003

World Bank president James Wolfensohn warned today that a potentially lethal pneumonia virus poses a possible threat to the economy of South-East Asia and South China.

"At the moment the impact I think is modest but if it continued with much more significant proportions it could have an impact," Wolfensohn told AFP in an interview.

"If it continues there could be an impact. It is obviously affecting tourism tremendously, disrupting travel for people who want to make investments or to trade."

The major impacts appeared to be in the South China region, Hong Kong and Singapore.

Nearly 2,800 suspected cases of Severe Acute Respiratory Syndrome (SARS) have been detected around the world, with China (1,268 cases) and neighbouring Hong Kong (883) the hardest hit. About 100 people have died of the virus.

The World Bank chief's assessment was backed by Westpac Banking Corp which said the outbreak would slow the growth rate of Asian economies.

However, the impact of SARS would be insufficient to push Asian economies into recession, Westpac senior international economist Huw McKay said.

Mr McKay said the SARS outbreak, which originated in China in November last year and has since spread world wide, would have a material impact on growth rates in the Asian region.

"Our analysis, in combination with anecdotal evidence from the region, suggests that if the worst of SARS have not subsided by mid-year, up to one percentage point could be shaved off ASEAN growth rates in 2003," he said.

However, it was important not to overplay the negatives, Mr McKay warned.

"In fact, fund raising activity of late points to early signs of a recovery in business investment, although refinancing of earlier liabilities does make up a significant portion," he said.

"We expect a material downward impact on growth from the direct and indirect effects of SARS, but an insufficient collapse to generate a recession."

Mr McKay said Singapore was likely to be worst hit, with schools and some factories closed as a result of SARS, as well as declining travel and tourism earnings.

Malaysian policy makers, who have already downgraded their 2003 GDP forecast, have indicated there would be cause for further revision if the epidemic worsens, he said.

Thailand was already projecting a drop in domestic travel, with hotel bookings for the upcoming Songkran festival unseasonably low.

The SARS outbreak has also affected tourism in Hong Kong, with the cancellation of the annual rugby tournament, resulting in a 40 per cent decline in takings.

Mr McKay said policy markers and forecasters had been revising down their growth expectations marginally, even before SARS began dominating the news.

"Two influential forecasting houses downgraded their Hong Kong and Singaporean numbers on April 2, citing SARS as the major reason," he said.

"The domino effect will likely push consensus expectations 1-2 percentage points lower for the most affected economies. While the direct impact of SARS may not be major, it is the herd impact of fear that will impact significantly on domestic activity."





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