Background Information

A pandemic influenza could deliver a "shock" to the economy, with immediate demand- and supply-side effects, as well as longer-term supply-side effects.⁵

The general slowdown in economic activity would reduce gross domestic product (GDP). Business confidence would be dented, the supply of labor would be restricted, supply chains would be strained as transportation systems were disrupted and arrears and default rates on consumer and business debt would probably rise. It seems likely that the stock market would initially fall and rebound later.⁵

Estimates of the economic impact vary widely. A pandemic influenza could cause a serious recession in the US economy, with immediate costs ranging from $500 billion to $675 billion. The following is a sampling of predictions from financial leaders.⁶

• WBB Securities LLC predicted that a pandemic influenza could cause a 1-year economic loss of $488 billion and a permanent economic loss of $1.4 trillion to the US economy
• The Congressional Budget Office said a pandemic influenza could deal a $675 billion hit to the US economy
• The World Bank has predicted that a pandemic influenza could cost the global economy $800 billion a year

Reference:
5.	Congressional Budget Office. A potential influenza pandemic: possible macroeconomic effects and policy issues. December 2005. Available at http://www.cbo.gov/ftpdocs/69xx/doc6946/12-08-BirdFlu.pdf. Accessed April 13, 2006.
6.	Death toll from bird flu hits 70 as Thai Boy dies. The New Zealand Herald. October 12, 2005. Available http://www.nzherald.co.nz/section/print.cfm.Accessed April 13, 2006.

Decline in travel and leisure activities⁵

In all likelihood, during the spread of a pandemic influenza, international travel would dramatically decline as people avoided flu "hotspots" and governments restricted travel. People would quarantine themselves and their families by staying at home more. Nonessential activities requiring social contact would be sharply curtailed, leading to significant declines in retail trade. People would avoid public places, such as shopping malls, community centers, places of worship and public transit. Attendance at theaters, sporting events, museums and restaurants would decline.

Schools and business would suffer⁵

It seems likely that many schools would close, and even if they did not attendance would fall dramatically as parents kept their children at home. In either event, large-scale school closings would lead to a spike in workplace absences because parents would stay home to care for their children even if they were not sick. The impact on businesses of all kinds due to employee absenteeism would be dramatic. Many would close, at least temporarily.

Supply-side impact⁵

Lost Employee Productivity

• Increase in absenteeism due to illness, caring for sick and implementation of policies to contain the pandemic (ie, social distancing); could reach 40% during peaks⁷
• Risk that some companies do not have capacity to support increases in telecommuting

Disruption of Supply Chains

• Disruption of transportation networks that limit ability to receive and distribute goods

Operations and Facilities Shutdown

• Increase in absenteeism due to illness, caring for sick and social distancing policies; could reach 40% during peaks⁷
• Inability to maintain operations because of shortages of staff, supplies or utilities
• Closure of facilities due to social distancing

Demand-side impact⁵

Drop in Demand for Products and Services

• Many companies will see drops in demand for products and services
  • Reduction in customer base due to illness and death
  • Customers likely to avoid public shopping areas, restaurants, entertainment facilities, etc
  • Potential decline in discretionary income as businesses are forced to halt operations
• Closure of facilities due to social distancing

Reference:
5.	Congressional Budget Office. A potential influenza pandemic: possible macroeconomic effects and policy issues. December 2005. Available at http://www.cbo.gov/ftpdocs/69xx/doc6946/12-08-BirdFlu.pdf. Accessed April 13, 2006.
7.	Guidance on Preparing Workplace for an influenza pandemic. US Department of Labor. Occupational Safety and Health Administration. 2007.