Just as everyone begins to talk of recovery and hope, a group of economists warn on the possible devastating effects that swine flu could have on the economy.
As the influenza A H1N1 virus spreads through the United Kingdom at ever increasing rates, a summer report from Ernst & Young’s Item Club team of financial experts predicts that the disease could cause the UK’s fragile economy to contract by a whopping 7.5% this year – knocking any hope of a recovery from the current recession.
As the global swine flu pandemic takes its toll on the general population, millions of workers could be shocked into “staying at home” out of fear of contracting the virus. Tourism could also potentially take a hit as airlines refuse to fly passengers suspected of having the virus and incoming tourists decide to stay at home.
The report says: “Perhaps the most worrying aspect of an H1N1 epidemic is that it would reinforce the downward effect of the recession on inflation.
“With the western world still teetering on the brink of deflation it is not an exaggeration to say that a pandemic on this scale could tip it over the edge.”
The Item club is already forecasting the economy to contract by 4.5% this year – its largest annual decline since 1945.
But further economic contraction is not the only worry these economists predict, deflation could also be on the horizon.
“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.”
“We estimate that under such a scenario the UK and world economies would fall into deflation. UK CPI inflation would fall to around -1% throughout 2010-12 and UK GDP growth next year could be as low as -7.5%.”
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It certainly guarantees healthcare jobs and jobs in the pharmaceutical industry.