Steve Quayle News Alerts

April 1, 2003

Hong Kong — Empty airliners, deserted department stores, vacant restaurants. In the city hardest hit by a mystery flu-like illness that has killed 62 people worldwide, there are signs of a potentially devastating economic impact.

As authorities announced 92 new cases of the deadly virus at a single apartment complex in teeming Kowloon on Monday, Hong Kong's blue-chip Hang Seng index ended the day down 2.6 per cent at 8,634.78.

The stock-market plunge was symptomatic of deepening gloom over the economic outlook as tourists heed travel warnings against visits to the region and local residents stay home, avoiding the crowded shopping malls, markets and restaurants that give this city its buzz.

Initially buoyed by lower oil prices and optimism over prospects for a quick U.S. victory in its war against Iraq, the region's economic prospects are now clouded by the outbreak of severe acute respiratory syndrome, or SARS, that has killed 13 people in Hong Kong and at least 59 worldwide.

In Canada, a fourth Toronto resident died from the illness during the weekend. The city, with its large community of immigrants from Hong Kong and mainland China, has the world's largest SARS outbreak outside southeastern Asia, with roughly 100 possible cases reported.

In Hong Kong, SARS has cast a pall on consumer spending, as well as tourism and other businesses and it's kept on spreading.

"This could be the worst thing since the Asian financial crisis. Hong Kong, Singapore and Taiwan could easily go into recession," said Andy Xie, a managing director of investment bank Morgan Stanley Asia Ltd. in Hong Kong.

Mr. Xie was one of only three passengers travelling in business class on a recent flight from London, but the drop-off in travel to the region is only part of the picture.

Department stores, shopping malls and restaurants, from the cheapest noodle and fast-food joints to upscale gourmet establishments, are far emptier than usual.

"How can you enjoy a meal when the waiters are tiptoeing around in masks? It's like going to a morgue," Mr. Xie said. "If this continues for very long, we're going to see mass bankruptcies."

Much depends on whether the outbreak can be brought under control soon.

Airline worries

There are concerns SARS has been spreading among airline travellers, compounding losses for air carriers and other travel-related businesses already suffering as a result of the U.S.-led war in Iraq — which shows no sign of ending soon.

On Monday, Hong Kong's de facto carrier Cathay Pacific announced it was cutting 47 flights a week, a 4-per-cent reduction in passenger capacity, as a result of lower demand.

Two other regional airlines, Taiwan-based China Airlines and Thai Airways, also announced Monday that they've cancelled flights to Hong Kong because of falling passenger numbers.

Last week, Air Canada said its traffic from Canada to Hong Kong had dropped off significantly but travel in the other direction seemed to be unaffected. It also said traffic on its flights to Beijing and Shanghai, its other two China destinations, had been apparently unaffected by the SARS crisis.

Asia's biggest economy, Japan, has so far not confirmed any cases of the mystery respiratory illness. On Monday, Tokyo's 225-issue Nikkei stock average tumbled 3.71 per cent to 7,972.71 on Monday, nearing a 20-year low hit earlier this month, but that was mainly on war worries.

Elsewhere in the region, though, SARS increasingly is cited as a concern.

GK Goh, an investment services group, slashed its forecast for Singapore's 2003 economic growth to two per cent from 3.8 per cent, citing both the medical crisis and the war.

Even in Malaysia, which has not yet reported any confirmed cases of the illness, stocks in the country's only casino, the Casino de Genting, were hit by investor fears that tourists from Singapore and mainland China might stay away.

Investment bank ABN Amro forecast that the outbreak could shave up to a half-percentage point off Hong Kong's economic growth for this year — and that's assuming the outbreak is brought under control within the next few weeks.

"It's not just about retail sales or tourist arrivals," said the report by ABN Amro. "The bigger potential problems are cutbacks in business travel, which would hit external trade, and the risk of the infection spreading to the industrial area in the Pearl River Delta."

Although it's too early to say if the outbreak will have a severe impact on tourism from mainland China, Hong Kong could lose a chunk of that business, which came to 75 billion Hong Kong dollars ($9.6 billion US) spent by 16.6 million visitors from across the border last year, notes David O'Rear, chief economist at the Hong Kong General Chamber of Commerce.

"That's only the direct impact. The indirect impact would be much larger, and it's more difficult to measure," O'Rear said. "It hits retail, the shopping malls and could have a cascading effect."

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