2007-04

The Economic Impact of an Influenza Pandemic

by Steven James and Tim Sargent (Finance Canada)

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Abstract

In this paper we examine the potential impact of an influenza pandemic on the economy. We use historical data to understand how past pandemics affected human health, human behaviour and the economy while also accounting for subsequent relevant economic and social changes. We find that previous pandemics and SARS had limited economic effects and that a 1918-type pandemic would likely reduce annual GDP growth by up to 1 percentage point in the pandemic year. Economic and social changes since 1918 would not likely imply significantly greater impacts today than in 1918. The demand and absenteeism impacts of a pandemic would be unevenly distributed across sectors. Small work units in which employees engage in a high degree of social interaction could expect higher peak absenteeism than larger work units with less social interaction. The natural resilience of market economies as well as reallocations of spending across sectors and across time would tend to mitigate the aggregate economic effects of a pandemic. If a pandemic were to occur, human suffering and loss of life would outweigh economic concerns.