The recent spread of Ebola has led to a tragic loss of human lives and stands to devastate West African economies. As the situation has evolved, and despite the equity market's apparent belief that it's all over, Goldman has examined the global economic and market implications of the outbreak.
It would appear Ebola is a thing of the past...
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But implications remain as Goldman Sachs explains,
We survey our economists and equity analysts to provide a sector-by-sector breakdown of the disease’s impacts to date and, drawing on past episodes of pandemic threats, its potential effects. We find that the economic costs of pandemics can be severe, but that the hit to growth is usually mostly limited to the region where the disease is centered.
The economic outcomes of a pandemic are often largely determined by an outbreak’s secondary effects, such as the “fear factor” and policy responses. History suggests that most impacts on stocks are typically short-lived and driven more by sentiment than by tangible effects on business activity, although this may not be the case in the mining sector.
Still, Ebola is not expected to alter the global demand and supply balance in most exposed commodities, with the possible – but still unlikely – exception of cocoa.
Breakdown of Ebola impacts to date and what we could expect
Economics: We anticipate only a small global economic impact, so long as the outbreak is contained, contagion fears do not escalate, and policy responses are commensurate with the threat to public health.
Commodities: If the outbreak spreads to Ghana and the Ivory Coast, 70% of the world’s cocoa supplies would be threatened. Nigeria is the key country for energy production, but this production is offshore.
Airlines/Aerospace: Given West Africa’s small share of global air traffic and limited interconnectivity to global routes, Ebola is unlikely to inflict a major hit on airlines unless its footprint becomes truly global.
Healthcare: Company-specific upside (orders) or downside (hospital occupancy) is possible, but historically pandemics have not had a meaningful or sustainable impact on businesses.
Lodging, Leisure, and Travel: With the lodging and cruise industries seeing supply increases emerge, the impact of Ebola will likely be secondary to broader consumer and economic conditions.
Mining: Until the Ebola outbreak in West Africa is under control, mining companies in the region will likely find it increasingly difficult to operate and execute on development plans.
Retail: Contagion fears are capable of lowering consumer demand, as happened in Hong Kong during SARS. Luxury retail in particular would suffer if air travel
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With the economies of Liberia, Sierra Leone, and Guinea contributing less than 0.02% to world GDP, the global economic impact of the Ebola outbreak is expected to be very small, assuming that the outbreak is contained with appropriate response measures. In countries so far largely unaffected by the disease, limiting the economic impacts of the current outbreak will require that contagion fears do not escalate and policy responses are commensurate with the actual threat to public health.
- Pandemics can have large growth impacts; for example, the three major flu pandemics in the 20th century (in 1918, 1957 and 1968) coincided with or preceded recessions in the United States.
- The effect of recent pandemics on economic activity has depended more on the population’s reaction to a health threat than the disease’s virulence. The mortality rate in Hong Kong from SARS was far less than in a typical US flu season, but fear of contagion crushed retail sales (which dropped roughly 10% from their peak), leading to GDP growth of -12% annualized in Hong Kong in 2Q2003. The duration of the epidemic also matters – as SARS came under control, the Hong Kong economy rapidly recovered by late 2003.
