The Australian Treasury have published a working paper ‘A Primer on the Macroeconomic Effects of an Influenza Pandemic‘. It is motivated by fears of Avian Influenza, SARS and so on.
The focus is admittedly on economic not health effects but the essential conclusion looks a bit odd to me. Using their TRYM model the paper finds that confidence effects and the large short-term withdrawal of labour promote most of the adverse economic effects. The suggestion: Adopt policies which restore confidence and which get people back to work.
Of course people would be staying home from work to avoid infection or to care for the sick so you would want to be careful about getting them back to work. In fact, staying at home might avoid high levels of overall infection and, after a transitional loss in income, might allow GDP to be restored more rapidly.
Deaths from the pandemic would raise GDP per capita and wages as claims on capital would accrue to survivors although (as the authors fail to note) there would be gains-from-trade losses. There would also be offsetting expenditures on health that would boost GDP and the possibility of a an expansionary fiscal response would further improve things. Thus long-run effects of the pandemic are likely to be milder than short-run effects. There would be big long-term effects on tourism and services.
This study contrasts with a much more pessimistic assessment of the effects of an epidemic by ANU researchers here.
‘Up to 30 % cent of Australians could catch the deadly bird flu virus if there is a serious global outbreak this year, a landmark study by Australian experts predicts.The report forecasts that one per cent of the population, or 214,000 people, could die, along with 2.2 % of humanity – or 142 million people.
In addition to the potential human toll, the study says even a “mild” bird flu pandemic would have a major impact on the global economy.
The potential price tag on an extreme outbreak is around $4.4 trillion, with Australia forecast to lose 10.6 % of its economic output as the global economy shrinks by 12.6 %. ‘
(McKibbin & Sidorenko).