In a new report the economists at TD Bank say that the SARS outbreak has become a real wild card in the global growth outlook.

TD says it is obvious that SARS will hurt Canada, “The only issue is how severe the actual impact will be.” It admits that hard numbers on the issue are scarce. “Any evaluation of the impact of SARS on the Canadian economy involves a fair amount of guesswork, much of which is based on newspaper reports and anecdotal evidence.”

In an earlier report it concluded that the negative impact of the outbreak on Canada’s economic growth would largely be limited to the second quarter of 2003, and would amount to a 1.0%-1.6% decline in the annualized rate of GDP growth relative to the pre-SARS scenario. This would be partly offset by a rebound in the second half of the year when some, but not all, of the second quarter loss would be recouped. “Overall, this implies the net impact on Canada’s GDP growth for the year as a whole of about 0.2%. In dollar terms, the net cost to the economy of the SARS outbreak in 2003 would amount to $1.5 billion to $2.1 billion,” it says.

TD says that its forecast is based on the assumptions that the outbreak is mostly confined to the Greater Toronto Area, and that the worst of the outbreak is over. It says that the rebound is less certain. “But perhaps the most important source of uncertainty is the psychological impact on the population as a whole. That alone could have a huge impact on any rebound, and there is no telling how long it will take for consumer and business confidence to fully recover.”

“Obviously, there is much that can go wrong in this scenario. The most evident is that the recent improvement in the situation proves to be only temporary, and starts to worsen again over the summer months. So far, the odds of that occurring appear to be extremely low,” it says.

But, more importantly, TD says is that there could be an impact through the trade channel. “The odds are now that the virus will have a noticeable impact on China’s economic growth and correspondingly, on its demand for exports. Given that China’s share of Canada’s exports is still very small, these sectors would not be facing an economic calamity. However, they are worth mentioning.”

“On the import side, concerns are that import supply channels could be affected if the outbreak continues to spread abroad,” it says. “The obvious concern is that goods used as intermediate inputs in the production of Canadian manufactured products could come to be in short supply, and could therefore hamper the production of some manufactured goods in Canada. Again, this would probably not result in an economic calamity, but it could have an impact on some sectors.”

“And finally, weaker Asian growth could have a negative impact on world commodity prices, and that too could weigh on Canadian economic growth,” TD concludes. “Consequently, while we have not accounted for disruptions to the manufacturing and resource sectors in our outlook, there is an evident risk on that front should SARS take more of a toll on the Asian economies in the months ahead.”