Oxford Economics Study: Swine flu could tip world into deflation

Swine flu could tip world into deflation: study

LONDON (AFP) – The global swine flu pandemic could tip the world into deflation, stalling economies just as they struggle to recover from the financial crisis, a British study said Friday.

Recovery could be delayed by a couple of years in a country like Britain, the worst hit in Europe and is quickly spreading around the world, said the study.

Comparing swine flu to major health crisis including SARS in 2003, the Oxford Economics study said much depends on how many people are infected by the A(H1N1) virus.

"Although so far the social and economic impacts have been very small, if infection rates were to rise much further, significant costs could be expected," it said.

"The SARS economic shock proved short-lived. Asian economies were growing very strongly when SARS broke out. As soon as the epidemic was perceived to be under control, consumption resumed and very strong growth returned.

But it warned: "This time around, such a sharp rebound is unlikely."

Swine flu threatens to keep millions of workers at home, while consumption and travel will be hit due to public health fears.

"GDP loss during the six months of the pandemic would amount to around five percent in the UK," it said, adding that calculation was based on a 30 percent infection rate and 0.4 percent death rate.

England's chief medical officer Liam Donaldson said Thursday that in a worst case scenario, around a third of the country's population could be infected and 65,000 killed.

"There is a risk that swine flu tips the UK and the world economy into deflation. This is because the pandemic would hit at a time when businesses and banks are still reeling from the economic crisis," the report authors said.

The warning came a day after report showed a sharp increase in its swine flu death toll, from 16 to 29 victims, saying that some 55,000 people were believed to have contracted the virus last week.

Concerns are also being expressed about when vaccines will be available to counter the virus, as forecasts of the global death toll rise, even if the World Health Organisation (WHO) has so far reported about 430 deaths worldwide.

The Oxford study concluded that Britain "should in principle be able to cope with a swine flu pandemic," but warned of a "significant risk that the pandemic triggers... unfavourable behavioural changes that tip it into deflation.

"A flu outbreak in the autumn would hit just as the economy starts to recover from the credit crunch. It would 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," it said.