Ebola hits economy: West Africa epidemic becomes serious risk to financial markets

Sarah Spickernell
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So far the threat of Ebola has been a "tail risk" (Source: Getty)

Ebola now poses a serious risk to financial markets.

The disease, which has killed more than 3,800 people since the current epidemic began in West Africa in February, has joined the list of factors that could have a catastrophic impact on world markets, according to the World Bank.
Weak global economic growth and the looming US interest rate hike are still considered bigger threats, but now the threat of Ebola is rated a “tail risk” - an event that would have dire consequences on financial health if ity happened, although the likelihood is small. The risk here lies in Ebola stepping up from being an epidemic to becoming endemic.
World Bank president Jim Yong Kim said:
Growth projects for 2014 of the three most affected countries have already been cut significantly. Just yesterday, we at the World Bank Group published our study that suggested that if we don't move quickly to contain the epidemic, as much as $32.6 billion could be lost by the end of 2015. This is a potentially catastrophic impact.
Over the past week, we've had a patient die of Ebola here in America, and now at least one, perhaps two infected nurses in Spain. We are likely to see more cases in more countries. Over the past month, we've seen a stepped up response. We are very grateful for the Secretary-General himself stepping in with the announcements yesterday and the evolving efforts of UN--UN MEER -- David Nabarro is here--have been very encouraging. But we're still way, way behind the curve, and we have to quickly speed up. We have to scale up the global response.
Speaking at the same event, IMF president Christine Lagarde added her view:
It is very rare for the IMF to say that, but on this occasion I will say it: It is good to increase the fiscal deficit when it's a matter of curing the people, of taking the precautions to actually try to contain the disease.
But this wasn't enough, she said, adding: "clearly, it's an instance where all international institutions, all bilateral donors have to rally around these three countries to help them face the crisis. And it is even more demanding, given the economic progress that those three countries have made over the last few years."
Already the disease is having an impact on markets outside the three countries.
Monday's news that a man in Texas died from the disease sent shares in travel companies tumbling, and this was exacerbated by the contraction of the virus by a nurse in Madrid the following day.
Others had already been treated for the virus outside of Europe, but this was the first time someone actually caught it outside of West Africa.
Shares in EasyJet went down by 19 per cent, while shares in IAG, which owns British Airwayas and Iberia, fell 12 per cent.
Thomas Cook tried to assuage investor concerns by pointing out that it the only place it flies to within the affected region is Gambia, but shares nonetheless fell 15 per cent.

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