Ebola – The Investment Implications

Ebola seems to dominate the news flow of late, and understandably so.  Deadly viruses command attention, as does the risk of pandemics.  While not minimizing the significance of the familial, social and demographic implications of rapidly spreading viruses, our expertise and focus in this brief blog, is on the economic impact.

In modern history, potential pandemics seem to surface about every five years or so (HIV, Swine Flu, Bird Flu, and SARS).  As a result, we have some experience with the phenomena.  In fact, in late 2003, the Institute of Medicine’s Forum on Microbial Threats convened a workshop called Learning from SARS: Preparing for the Next Disease Outbreak.  Publications that resulted from this seminar proved instructive in understanding the dynamics of pandemics and in assessing this current threat.  One in particular was a paper co-authored by John-Wha Lee and Warwick J. McKibbin titled “Estimating the Global Economic Costs of SARS.”    The authors note, “ … just calculating the number of canceled tourist trips, declines in retail trade, and similar factors is not sufficient to get a full picture of the impact of SARS because there are linkages within economies, across sectors, and across economies in both international trade and international capital flows.  The economic costs from a global disease such as SARS go beyond the direct damages incurred in the affected sectors of disease-inflicted countries.  This is not just because the disease spreads quickly across countries through networks related to global travel, but also because any economic shock to one country is quickly spread to other countries through the increased trade and financial linkages associated with globalization.”

From this, one could reasonably conclude that if viral threats prove sustainable, the economic impact would be severe.  Conversely, if threats (in this case, Ebola) prove manageable (as did SARS, because of rapidly evolving hygiene/medical protocols, as well as therapeutic developments at the time), the impact would be muted.  We do think that in the very short term, some economic impact will be felt by Ebola, but longer term, expected new therapies and protocols will prove helpful and no lasting effects will be felt economically.

All comments and questions are welcomed.

Bob Bilkie, CFA®