Hong Kong hit by Sars costs

The pneumonia-like illness spreading through Hong Kong is threatening to have a major impact on the former British territory's economy as tourists stay away, business travel is axed and local residents shun bars and shopping centres.

Analysts at Morgan Stanley have cut their GDP forecasts for this year for Hong Kong to 0.2% from 1.1% previously.

There will also be an impact on the wider Asia-Pacific region, for which Morgan Stanley has cut its 2003 GDP forecast from 5.1% to 4.5%.

The illness, known as severe acute respiratory syndrome or Sars, has already led to the closure of establishments such as schools and universities.

It was already having an impact on business travel, even before the warning from the World Health Organisation issued yesterday not to travel to Hong Kong and China's Guangdong province.

HSBC, the biggest bank in Hong Kong, had already stopped all non-essential travel to and from Hong Kong.

A committee of HSBC's senior managers is meeting each day to assess the situation.

As a contingency measure, 50 bankers from HSBC's trading floor have been sent home for 10 days to ensure they are not infected before being transferred to work in a back-up site to avoid any further chance of infection.

Standard Chartered, another British-based bank with a strong presence in Hong Kong, is restricting employees' travel not just to Hong Kong and China but also to Singapore and Vietnam.

The London Bullion Market Association, which had been scheduled to hold its annual precious metals conference in Shanghai in May, said yesterday it would now hold the event in Europe in June.

The World Gold Council also postponed a meeting due to take place in Shanghai.

Analysts at Morgan Stanley said that while Sars was expected to "slash inbound tourism reserves by 0.6% of GDP in 2003", this would be cushioned by a reduction in outward travel that will reduce the impact to 0.4% of GDP.

There will also be impact on the economy from a downturn in consumption.

"Restaurants and cinemas have seen their worse patronage ever in the past few days as consumers hide away from crowded locations in the hope of avoiding the disease," Morgan Stanley said.

They expect private consumption to fall by 0.4% for the full year of 2003, with the slide being cushioned by a rise in consumption of media and health care, hygiene services and home entertainment items, such as books and video rentals and food bought from supermarkets.

Analysts believe that Sars will have a much more significant impact on local consumption than previous outbreaks of illnesses such as dengue fever because it is spread by humans rather than animals or food - as has been the case with previous epidemics.

The team at Morgan Stanley also pointed out in their note on the disease that the economy in Hong Kong is already feeling the impact of the conflict in Iraq.