Mexico swine flu outbreak may deepen economic decline

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(Agencies)
Updated: 2009-04-28 15:30

Mexico's outbreak of deadly swine flu may curtail tourism and compel shoppers to stay home, further damaging an economy already reeling because of a US recession that has cut demand for exports.

President Felipe Calderon closed Mexico City schools until May 6, shut public events and declared emergency powers to order quarantines to fight the flu, which has killed as many as 103 in Mexico. Finance Minister Agustin Carstens said there's "high potential" the outbreak will disrupt the economy, with hotels and restaurants being the hardest hit.

Gross domestic product would shrink more than forecast this year if there are widespread travel and trade restrictions imposed on Mexico, which may happen should infections continue to rise, said Alberto Bernal, head of fixed-income research at Bulltick Securities Corp.

"If this becomes a real pandemic, things will get complicated," said Bernal, who is based in Miami.

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Swine Flu Outbreak

The World Bank has agreed to lend Mexico $205 million to flight the flu, Carstens said yesterday. Of that amount, $25 million will be disbursed immediately so the government can buy medicines and equipment to detect the virus.

Mexico is fighting a virus that is a variant of the H1N1 swine influenza that has infected 20 people in the US Carstens said investors shouldn't be concerned about the outbreak because it's a "transitory" problem and the country is prepared.

Deaths, Hospitalizations

The number of deaths from Mexico's flu outbreak has risen to 103, Health Minister Jose Cordova said in an interview with television broadcaster Grupo Televisa SAB yesterday. Of those, 20 have been confirmed as cases of swine flu.

Of 1,324 patients who were hospitalized with flu-like symptoms, 929 have been treated and released, according to figures released late yesterday.

National museums are shut, government activities that draw crowds have been canceled, some restaurants are empty and residents of the capital could be seen wearing face masks as they ran errands. Health Minister Jose Cordova on April 25 requested, but didn't order, the closure of bars, movie theaters and churches.

Soldiers stood at the entrance of the National Palace, telling tourists that the site of famous Diego Rivera murals was closed until further notice. The army handed out face masks in Mexico City's downtown square, known as the Zocalo.

Cristiana Correa, a 29-year-old tourist from Brazil, wandered the Zocalo with a guide book and map, trying to find a tourist attraction that was open. Correa said she's concerned she won't be able to see much during her two-day stay in the city. "I don't have anything to do," she said.

Services, Tourism

So far, the outbreak has mostly affected the services and tourism industries, said Rodrigo Centeno, an economist at the Mexico City-based Center of Investigation for Development. Consumer confidence may dip if the outbreak continues, he said.

Olivia Gutierrez, a receptionist at a Mexico City hotel operated by NH Hoteles SA, Spain's largest publicly traded hotelier, said two of every seven guests had canceled their reservations and that the hotel was 32 percent full.

"One lady left early today because she works at the university and it's closed," Gutierrez said.

No foreign government has banned travel to Mexico. Visitors from abroad, who added $13.3 billion to the economy in 2008, are Mexico's third-largest source of foreign currency behind oil exports and remittances from Mexicans who live abroad.

The economy is already struggling this year as production falls, jobs losses increase and US demand for Mexican exports such as cars and home appliances plummets. GDP shrank 1.6 percent in the fourth quarter and probably contracted another 4.2 percent in the first three months of this year, according to a central bank survey published April 1.

Effect on Demand

Any long-term closure of workplaces would hurt production and might endanger the health of companies, said Centeno, the Mexico City-based economist.

"Right now the effect is on the demand side," Centeno said. "Closing workplaces could affect supply."

Raul Sanchez, a 49-year-old taxi driver in Mexico City, said business has dropped by half since April 24, when the government first shut schools.

"People don't even want to leave their houses," he said. "It was bad enough with the economic situation, and now it's even worse."

Carlos Martinez, 25, a cashier at a Farmacia del Ahorro in Mexico City's Condesa neighborhood, said the store was having a hard time keeping face masks in stock. He sells out of a shipment of 1,000 to 1,500 masks within 2 hours.

Martinez said he was worried about contracting the flu because he was coming in contact with so many people looking for masks or medicine.

"There's no doubt it will reduce economic activity, but how severe we don't know yet," Carstens told reporters yesterday. "If it's resolved in matter of days, the impact will not be significant."