The Economic Cost of a Flu Pandemic

There's been a great deal of discussion in the news about the possibility that the H5N1 strain of bird flu may cause a flu pandemic of the likes not seen in the Western world since 1918-1919. Needless to say the possibility of a pandemic that could cause the loss of hundreds of thousands of lives is bound to get people's attention. Furthermore, disease control researchers tend to talk about "when" the flu pandemic might hit, not just "if".

Beyond the terrible cost in human life, the economy would take a severe hit, hurting the livelihood of billions. In a piece published for the World Bank Milan Brahmbhatt discussed the possible economic cost of a flu pandemic. He writes:

Interestingly, the most immediate economic impacts of a pandemic might arise not from actual death or sickness but from the uncoordinated efforts of private individuals to avoid becoming infected. This at least was the experience during SARS, when people tried to avoid infection by minimizing face-to-face interactions, resulting in a severe demand shock for services sectors such as tourism, mass transportation, retail sales, hotels and restaurants, as well as a supply shock due to workplace absenteeism, disruption of production processes and shifts to more costly procedures. This led to a an immediate economic loss of perhaps 2% of East Asian regional GDP in the second quarter of 2003, even though only about 800 people ultimately died from SARS. Note that a 2 percent loss of global GDP during a global influenza pandemic would represent around $200 billion in just one quarter (or $800 billion over a whole year), and it is fair to assume the immediate shock during a flu epidemic could be even larger than in SARS.

The $800 billion (U.S.) figure has been extensively quoted in the media (see here, here, and here for example[/link]). It should be noted that the $800 billion is a very, very rough estimate, based on the idea that it would reduce global GDP by 2%. There's no reason to believe that the real figure would wind up being significantly more or significantly less than this.

What is interesting to me is the statement that "most immediate economic impacts of a pandemic might arise not from actual death or sickness but from the uncoordinated efforts of private individuals to avoid becoming infected". I have the feeling that this is true with a lot of "Acts of God" and other tragedies - that the bulk of their economic destruction come not from the incident themselves, but in all the side-effects. A VP I know at a rental car company once told me that they lost millions of dollars the week after 9/11, due solely to the fact that people in large markets were renting cars and simply not returning them, or returning them to locations where they were not needed. They were doing this in fear that their city may be attacked, so they needed to find a way to go somewhere they felt was safer.

I know if a flu pandemic hit I would probably spend a lot more time in my house and a lot less time out doing productive things (like being at work!) Like many people, I've stocked my pantry full of food, just in case something happens and I won't be able to leave the house for a week or more. A fair amount of money was spent on that food, money that could have been used for more productive purpose (of course, I'll wind up consuming that food, so that money wasn't wasted so much as tied up).

These are little things, but the little things that millions of us do all add up to giant expenses. Given all the little (and big things) people would do during a flu pandemic I am not surprised that the loss to the economy could be near a trillion dollars. In fact, I'm surprised the estimate is that low.

Have a thought on the economic cost of a possible flu pandemic? If so, please send them to me by using the feedback form.