Policy Brief Vol. 6, No. 18:
May 08, 2003
Economic Impact of SARS
Markets thrive on the unexpected. Whether it's the weather, diplomatic developments or other factors, prices react – up or down – when something out of the ordinary occurs.
Analyzing anything unforeseen requires an assessment of its scope and staying power. How much of the market is impacted? Will it be affected for days, months or years?
The severe acute respiratory syndrome (SARS) epidemic certainly qualifies as being unexpected. In a matter of weeks, this highly contagious illness spread around the world. Concern has been particularly high in China, where SARS began.
Confirmed cases of SARS worldwide now exceed 6,500, and deaths are nearing 500. While these numbers are not insignificant, neither are they a large percentage of the population in any locality where the SARS-causing virus has been identified.
Appropriately, the first response to SARS has been from health-care professionals. But more recently, economists and other analysts have begun to assess the damage SARS could inflict on domestic economies and worldwide trade.
The most obvious impact has been in China. This year started out as another boom year for the world's largest country. The economy was expected to grow by as much as 8 percent. Now, most analysts see no more than 6 percent growth, and it may even drop below that in coming months. Virtually every part of the economy has been hurt as both domestic consumers and tourists stay home.
China's Asian neighbors are feeling the pinch as well. Countries like Japan, Korea, Taiwan, and Singapore all depend on China to buy a significant share of their exports. Chinese demand for automobiles, electronics and other manufactured products has slowed significantly in recent weeks.
This is not the end of the ripple effect. All of the countries identified above are significantly involved in worldwide trade of goods and services.
Japan, for example, is the largest buyer of U.S. farm commodities and foodstuffs. If Japan's sales to China falter, so do potential imports, even if the latter would have come from America, not China.
In China itself, most of the immediate concern is about meat products. That's because some speculate – without scientific confirmation – that SARS originated from animals living in close proximity to humans. As consumers turn to alternative foods, it seems likely to have an effect on the demand for animal feed.
From the perspective of U.S. farmers, the immediate concern is about Chinese demand for soybean meal. For much of the past year, Chinese buying has kept soybean markets vibrant. But the longer the SARS scare persists, the greater the chance that soybean demand will shrink. Farmers should not ignore that reality as they plot market strategy.
5/8/03-RF/VM
Roy Frederick - Ph.D.
Agricultural Economics
Professor
(402) 472-6225
Vicki Miller Research Communications Coordinator (402) 472-3813
Department: Agricultural Economics
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