The Perils of Paranoia.(SARS will not cause an economic disaster)

SARS has turned Michael O'Keefe's business upside down, but not for the reasons you might think. As a risk consultant at Kroll International, he normally plays the voice of caution. Not now. In Japan, which has yet to confirm a single case of SARS, he's telling clients that draconian emergency measures--from bans on corporate travel to quarantines for employees who have visited Asia even briefly--are "overkill." His advice: be prudent, but recognize that SARS is not an Asia-wide pandemic, even if it looks like one in headlines. "Just because there's a sick man in Asia," he says, "doesn't mean all of Asia is sick."

Amid warnings from prominent economists that SARS threatens to produce a financial crisis as bad as the 1997-98 Asian currency contagion, it's time for a reality check. SARS has crippled travel, transport and retail industries, but the damage is largely confined to a few "hot zones" like Hong Kong, Singapore and, most recently, China. No, SARS isn't all in our heads, but predictions of an economic disaster assume a region wide epidemic, which now looks less and less likely. "In my 28 years in Asia, I have never seen such blind panic," says Steve Vickers, CEO of International Risk, a security consultancy. "I've heard about people in Europe concerned about packages coming from Asia. DHL takes 36 hours; viruses don't last that long."

In a report released late last month, the World Bank lowered its growth forecast for Asia from 6 percent to 5 percent, which puts the cost of the SARS epidemic at roughly $30 billion, a tiny fraction of Asia's losses in 1998. The study attributed most of the losses to panic, not illness, noting that "in the short run, the economic consequences arise almost entirely from public perceptions and fears about the disease-- and from precautions the public is taking against it--rather than from the disease itself."

That observation should quiet melodramatic comparisons of the SARS scare to the Asian contagion. Back then, all of Asia fell into a serious recession, with region wide growth plummeting from 8.3 percent in 1996 to 4.4 percent in 1998; in Thailand, Malaysia, and Indonesia, tens of millions fell into poverty. Even China (which cooked its books to hide the impact) saw GNP growth fall to as little as zero percent by some estimates. In comparison, SARS is a paper contagion.