Ali Velshi Outlines the Effects of the Swine Flu on the Economy

May 1st, 2009

Swine Flu’s Impact on the Economy
by Ali Velshi

Whether the swine flu outbreak in Mexico spreads quickly to become a worldwide epidemic, or ends up being something much less, we’re starting to see the potential economic impact unfold. There are confirmed cases here in the United States and a number of other countries around the world; and already we’re seeing travelers reconsider their itineraries and trade barriers start to go up — at least temporarily.

Russia announced a ban on meat imports from Mexico, Texas and California, stoking the concerns of officials in Washington. Other countries are following suit. U.S. Trade Representative Ronald Kirk said: “We want to make sure that a handful of our trading partners don’t take advantage of this and engage in behavior that could damage the world economy.”

Agriculture Secretary Tom Vilsack told Americans and the world that pork products in this country are safe to consume, because the virus is not food-borne.

Meanwhile, the outbreak has hit America’s $770 billion travel industry already feeling the pinch from the recession, as more people cut back on both business and leisure travel. Mexico vacations had been a bright spot, because they tend to be cheaper than other vacation destinations.

Some airlines, hotel chains and cruise lines are allowing American travelers — heeding the Centers for Disease Control warning to forgo non-essential travel to Mexico — to cancel or delay their reservations.

With all this in mind, let’s take a look at some potential economic winners and losers in this swine flu outbreak:

1) America’s travel industry could lose a lot in a health crisis. As mentioned earlier, U.S. travel companies have already started responding to concerns about travel to Mexico, which only accounts for a small percentage of overall revenue. The real concern for the industry going forward is the fallout the flu scare could have on domestic travel, which accounts for almost 90 percent of total revenue.

2) U.S. agriculture exports could suffer. As with Russia’s recent example, many countries responded with bans on U.S. meat imports when small outbreaks of mad cow disease and foot-and-mouth disease led to some culling of herds in this country — bans that took years to overturn.

3) Some pharmaceutical companies could make out just fine. Many drug companies could benefit from an upswing in demand for vaccines if swine flu turns out to be a bigger problem than it already is.

Having said all that, I wouldn’t advise all you day traders out there to rush out and buy pharmaceutical stocks, or short airline stocks. This swine flu crisis could go the way of the last two big health scares, the SARS outbreak of 2002 and the avian flu scare in 2005.

Those two incidents turned out to be relatively limited events, after initial fears of massive epidemics spreading around the globe. Still, we should be concerned about this swine flu scare, and not just because of the potential health consequences to us all.

If swine flu does develop into a worldwide crisis of epidemic proportions, the current global economic recession will get much worse, and it will take much longer for world economies to recover.

Ali Velshi is CNN’s Chief Business Correspondent