2003 April 07 Monday
Economic Impact Of SARS Is Increasing

The Hong Kong Retail Management Association reports Hong Kong retail sales have dropped in half due to SARS.

Retail sales in Hong Kong have fallen by 50% since the outbreak of the deadly pneumonia-type Sars virus, a retail group has said.

Citigroup sees SARS as a growing economic threat.

"Sars is a growing threat to Asia and possibly the globe," Citigroup said in a research report, estimating that even if it ended soon, it could have a negative impact of more than 1 per cent on Hong Kong and Singapore's gross domestic product growth

Hotel occupancy rates are another indicator of how far business travel has declined in the region.

Singapore and Hong Kong, the two cities that have been hardest hit. Hotels in the former British Crown colony have seen occupancy levels drop to below 20 percent.

SARS has already caused the shutdown of one cell phone manufacturing plant.

According to IT researcher the Aberdeen Group, Motorola Inc. has temporarily closed a cell phone manufacturing facility in Singapore after authorities quarantined 305 workers due to SARS exposure;

Cell phones are end-user products. There are many alternative suppliers. Loss of one manufacturing plant is going to have a fairly small impact. What would have a much greater impact would be shutdown of a plant that makes key components that are made by few other plants.

Business leaders see SARS as potentially very disruptive.

"The SARS situation is causing greater concern for us right now than the war is," says Irwin M. Jacobs, CEO of phone-technology giant Qualcomm Inc. (QCOM ) "It has the potential to seriously disrupt business."

Russell Craig, co-author of a report by the Aberdeen Group on the threat that SARS poses to electronics manufacturing, emphasizes the threat that SARS poses to the key component makers in the electronics supply chain.

“As an example, the PRC is a major source of AC-to-DC power supplies -- those little black cubes that clutter your power strip. You can assemble a laptop elsewhere, but you cannot sell it without a power supply. Thus SARS threatens the supply of key component building blocks, not just the assembly plants.”

Another big impact of the reduced amount of travel due to SARS will be decreased numbers of business deals, decreased rate of progress for engineering meetings to customize parts for customers, reduced amounts of on-site tech support, and other reductions of face-to-face meetings that enable commerce to happen.

Given time, the ripple effects of manufacturing disruptions, travel bans and transportation delays, would affect the entire supply chain of the industry. Due to its low manufacturing costs, China has been a key producer of electrical components in recent years.

Distrust of the Chinese government is causing people to react to their worst case fears on the spread of SARS.

Until Wednesday, Shanghai had consistently denied harbouring any SARS cases. Though the city government announced on Friday it has discovered just one SARS case so far, many city residents say they find that hard to believe because of the thriving commercial metropolis' close business links with Hong Kong and Taiwan.

Businesses are going to avoid sending personnel to China for longer than they avoid sending people to Singapore and other areas infected with SARS because the Chinese government can not be trusted to tell the truth about SARS. After supposedly admitting to all known SARS cases the latest report from China which reports a total of 53 deaths sounds like it includes older known cases that were previously not revealed.

State television reported one SARS death each in the provinces of Shanxi in the north, Sichuan in the west and Hunan in central China the first reported fatalities in those areas and an indication the disease was more widespread than previously acknowledged.

In at atmosphere of distrust about what are the real facts about SARS business decision-makers are going to tend toward assuming the worst. If China is unable to stop the spread of SARS then the rate of new foreign direct investment will begin to decline. That will slow China's economic growth rate.

A lot is riding on the ability of public health authorities to stop the spread of SARS. For the latest thinking on the scientific and medical efforts to stop SARS see my FuturePundit post entitled "Scientists Say SARS Spread May Be Inevitable"

Share |      By Randall Parker at 2003 April 07 12:54 PM  Economics Political


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