Mexican Swine Flu… How Bad Could It Get?
An age-old and overused proverb goes something as follows: ‘when the US sneezes, Mexico catches a cold’ – a reference usually labelled at the Latin American country’s inexorable commercial linkages to its northern neighbour. Well, this time it could be (quite literally) the other way around, with the US declaring a state of public health emergency in the wake of an outbreak of swine flu south of the border. The porcine-transmitted flu bug has so far claimed the lives of roughly 100 people in Mexico, provoking widespread disruption of economic activity across the country.
Risk Watchdog typically avoids making trading decisions based on headlines. However, with panic over the virus hitting Asian and European stocks this morning, it would take a miracle for Mexico’s bolsa to post gains over the coming days.
Mexico – Benchmark IPC Index
How bad could it get? At this stage, I would take you back to the eerily similar events of 2002, when the Asian-borne flu virus known as SARS claimed the lives of 774 people and sickened another 8,096, according to WHO stats. The epidemic came at a time when global stocks were being whacked by the bursting of the ‘dot-com’ bubble, sending Asia’s benchmark indices into freefall. In the 10 months that followed the outbreak of SARS, Hong Kong’s Hang Seng index plunged 23.7% to hit 8,302 – its lowest level since the 1998 crisis.
Of course, fears over the disease could well blow over in the coming days. But what IS clear is that this was the last thing that the Mexican economy needed right now. Consumer confidence, retail sales and credit expansion are already at multi-year lows, persuading my colleagues at Business Monitor to forecast a consensus-smashing 5.5% contraction of Mexico’s real economy in 2009. Throwing the ‘Black Swan’ of swine flu into the mix, I am sure that few people will be disagreeing with them now.