There will be no peace dividend for defeating this enemy

It looks increasingly – and alarmingly – as though Sars may deal a bigger blow to the world economy than the Iraq war. Until recently, the disease was only seriously affecting one set of industries, travel and tourism, and one region of the world, East Asia. But now the spread to Canada and, in particular, the World Health Organisation warning about travel to Toronto, raises the possibility of Sars having a true global impact.

And unlike the shock of the Iraq war, where there is now the probability of lower oil prices, this is a shock that can have no pluses, only minuses.

The situation so far is that whatever happens now there will be some significant negative impact on world growth this year. Even if the outbreak is contained, and seen to be contained, in the next few weeks some output has been lost that can never be recovered.

The travel and tourist business is huge: defined widely, it accounts for about 11 per cent of world output. At the moment, air travel in much of East Asia is down by some 30 per cent. In the city most severely hit, there are reports of hotels with 10 per cent occupancy.

This is very serious for two reasons. First, the output of the travel industry cannot be stockpiled. A computer or a fridge that is unsold can be put into a warehouse and sold later, but an airline seat or a hotel bed that is unsold is lost forever. Second, these are industries that have already been weakened by the 11 September attacks and their aftermath in Afghanistan and Iraq. They are particularly vulnerable.

In addition, the region most affected is the one that, up to now, has been the main engine of growth. East Asia has been the fastest-growing part of the world. Canada, the only Group of Seven developed country to be affected so far, happens to be the fastest-growing member of the G7. By a cruel coincidence, Sars takes out the most vibrant bits of the global economy just at the moment that the world is struggling to recover from its most severe and depressing downswing for a decade.

How serious the ultimate impact will be is guesswork. Canada has just estimated that Sars will knock between 1 and 1.5 per cent off growth during the second quarter of the year. That must be a minimum, given the WHO warning about non-essential travel to Toronto, Canada's largest city and main economic hub. Estimates of the damage to China, particularly to the Guandong province are even greater.

But the truth is that we just don't know whether this will be three-month dip or something much more lasting. Were the disease to spread and there to be WHO warnings about travel to other large North American or European cities, then the economic fall-out would be huge and painful.

Calculations of the loss of output become meaningless because we have little idea how far SARS will spread or how long the outbreak will last. But just by way of illustration, were the world to lose 0.5 per cent of its output this year, that would in harsh economic numbers be equivalent to $200bn – more than double the estimated cost of the Iraq war.

Beyond that – and beyond the obvious human costs – would be a new and more general concern about international travel. Of course it won't stop it, just as it will hardly check the growth of international trade. But it will be another bit of grit in the world economy, making it function less smoothly, and we will all feel the effects of that. And while we must hope that there will be swift progress in coping with Sars, even success in fighting the disease brings no peace dividend.