There is always an 'X' factor in economics, something that comes from out of the blue to shock markets and the global community. There are often geo-political shocks a financial collapse or a public health issue. So far, factor X in 2016 could be Zika.
Brazil was all ready to party at the Rio de Janeiro Olympics in August but it is now bracing itself for Zika. The Zika virus, named after the Zika Forest in Uganda where it was first found in the 1940s and borne by mosquitoes, is threatening to damage Rio's Olympic preparations and create a humanitarian crisis in the Americas and beyond. It is particularly dangerous to new-born babies born to affected mothers.
So far, 1.5 million Brazilians are affected and Zika is spreading across the Americas. Along with Brazil, Venezuela, Colombia, Mexico, and Puerto Rico could already be affected. Scientists fear it will move up to the US from Central America through the swampy mosquito-infested region of the gulf coast (Louisiana, Texas, Florida etc).
So what are the potential economic effects of Zika and how does it compare to other outbreaks such as SARS, Bird Flu and Ebola?
In 2003, SARS reduced the economic activity of Singapore, Malaysia, Hong Kong, and China by 20% over the year 2003 although it was concentrated in the second quarter for about two months, with sharp disruptions to travel and tourism.
In 2013, Bird Flu is said to have caused $6.5 billion in damage to the Chinese economy. Early fears talked about an $800 billion hit to the global economy but that proved to be a worst case scenario. The Chinese Government's prompt action to temporarily restrict transport in the poultry industry to the affected ten provinces and then invest significantly in the industry to the tune of 600 million RMB or $97 million helped to stem the flow of the virus.
Last year, Ebola impacted West Africa badly in terms of industrial production, with World Bank estimates suggesting a whopping 12% drop in GDP in the worst affected countries.
So how will Zika affect Brazil economically? [fold]
The outbreak couldn't have come at a worse time, as the South American powerhouse is already facing tough economic times. From being the poster child of the global economy five years ago when it overtook the UK in global economic rankings, it's had the end of the resources boom to contend with along with a presidential corruption scandal and large protests in the lead up to the 2014 FIFA World Cup over corruption and crumbling public infrastructure.
With the Rio Olympics, Brazilian tourism was expected to be worth 10% of GDP, up from the regular 9% in a normal year. If Zika affects Brazil in SARS-like proportions, it will shave 20% off tourism income (equivalent to US$47 billion, according to UK based Economist Geraint Johnes).
Zika is already diverting resources, as President Dilma (facing impeachment) has had to divert security resources from Olympic venue testing to an anti-Zika mega-operation. The President described the campaign in a televised address as 'battle for life'. All places where mosquito larvae can infest are being eliminated, including those areas close to Olympics venues.
The City of Rio de Janeiro has intensified its efforts to eradicate mosquitoes from venues and is increasing the ranks of the 3000 public health officials it employs in normal times. Every effort will be made to ensure Rio 2016 is Zika free, though the Australian Olympic Committee (AOC), among many participating bodies, has said it is monitoring the situation, especially for pregnant female athletes.
There is a view that in light of this latest setback, Brazil needs the Rio Olympics more than ever and will pull out all stops to ensure public safety for athletes and spectators. And it is hoped that by the time the Olympics start, sufficient time will have passed for Brazilian medical authorities to have contained the virus. Brazil, especially under President Lula, has invested strongly in public health and social capital at home and abroad (particularly in Africa as part of its 'South-South' strategy), so it does have experience in fighting widespread threats to public health.
Flickr photo by Dan Bergstrom.