13th Mar, 2006: CANADA - An avian flu pandemic would take a two to six percentage point bite out of global economic growth, bank economist Sherry Cooper said in a report released Monday.
It could also cause birth rates to plunge and result in an older population, leading to sustained labour shortages, the report said.
As experts watch the bird flu spread, Cooper, the chief economist at BMO Nesbitt Burns, has been rallying Bay Street and investors to prepare for a possible pandemic.
On Monday, she released her third report looking at the potential economic impacts. It came as the International Monetary Fund released a study which said that: "If the pandemic is severe, the economic impact is likely to be significant, though predictions are subject to a high degree of uncertainty."
The IMF said the pandemic's impact will depend on its attack and fatality rates, its duration, the preparedness of households and companies, and the capacity and preparedness of health-care systems.
"A pandemic similar to the 1918 Spanish flu could result in high level(s) of illness and death, and a sharp but only temporary decline in global economic activity," the IMF said.
It also said that "a severe pandemic could pose risks to the global financial system." Risk-averse investors would boost demand for liquidity, cash and low-risk assets. The "flight to quality" would cause declines in asset prices and widening credit spreads, the IMF said. Commodity prices would fall, but that could be offset by potential supply disruptions for key commodities like oil.
"Market operations could become more disorderly in the case of a breakdown in the trading infrastructure, leading to limited or intermittent trading," the IMF added.
In Cooper's report, she predicts that a mild pandemic would reduce annual gross domestic product growth by two percentage points, while a severe pandemic — similar to the 1918 Spanish flu — would reduce global GDP growth by six percentage points.
With current global growth forecasts of about four per cent in 2006, a mild pandemic would not be enough to cause a formal recession in the United States or Canada, but a severe pandemic would push the global economy to contract for the first time since the Second World War, Cooper said.
Cooper noted that the current characteristics of the roughly 200 human cases of H5N1 to date show "a meaningful similarity to the severe 1918 flu virus."
The cases appear to have the highest death rates among 15-to-40 year olds, rather than the very old or very young.
"This results from a cytokine storm, where the immune system not only attacks the virus, but in the process, damages lung, brain and other tissue," Cooper wrote.
"If there were a cytokine storm, as in 1918, pregnant women and 15-to-40 year olds would be proportionately the hardest hit."
That would have a lasting impact on demographics and economic activity around the world.
"Birth rates would plunge and the average age of the population would increase significantly," Cooper said.
There would be sustained labour shortages, and demand for housing, cars, electronics and other durable goods would drop, she added.
"Consumption growth, in general, would be slower and government and private pension plans would risk a fairly rapid insolvency."
While the effects of a possible pandemic remain largely theoretical, Cooper noted that poultry producers are already suffering.
"Even though avian flu is spreading rapidly in the bird population, it is still extremely difficult for humans to become infected," Cooper wrote. Human infection usually comes from direct exposure to sick or dead birds.
"People cannot contract H5N1 by eating fully cooked chicken and poultry products. Nevertheless, poultry demand has fallen sharply in Europe," Cooper wrote.
Effects will begin to be felt by poultry-feed growers, poultry processors, grocers and restaurants, she said, especially those specializing in chicken — including KFC, Swiss Chalet, St. Hubert, Church's and Kenny Rogers Roasters.
"The Canadian poultry industry is, in general, little dependent on exports or imports, but new provincial rules forcing the confinement of birds make the practice of free-range raising more difficult," Cooper said.
She added that the three largest poultry companies in Canada are Lilydale Poultry Co-op, Maple Leaf Poultry (TSX: MFI), and Maple Lodge Poultry