A bird flu pandemic could send global markets into a tailspin and push the world into recession, the World Bank has warned.

In its biannual report of East Asian economies, the institution said that so far, the avian flu threat has been remained isolated in rural areas of countries in the region, but the virus' migration to Europe suggests that its effects could be devastating if the current strain mutates.

Higher oil prices and interest rates that have dogged manufacturers and traders worldwide and weakened global economies will suffer even further from an international pandemic of avian flu.

"Although there have been relatively few human casualties so far, there is considerable concern that this strain of flu might mutate into a form which could cause substantially higher human casualties and then substantially higher economic costs as well," said Homi Kharas, the World Bank's chief economist.

The report said that already there are significant risks to economic growth next year due to governments' plans to issue travel restrictions and quarantines in the event of an outbreak.

"While the costs of dealing with this so far have been limited to around 0.1 percent of GDP, from culling birds and implementation of better animal health surveillance systems, the potential impact of a serious pandemic is of grave concern," said the report's author, Milan Brahmbhatt.

Brahmbhatt claimed it is difficult to know when or if the current H5N1 strain of the virus might mutate into a form capable of transmission among humans but said "there is a significant risk and certainly enough for governments everywhere to take precautions."

However, it is the nature of these precautions and governments' reactions that will largely in the beginning determine how much of a hit the world economy takes.

The most immediate economic impacts would come from authorities responding in a knee-jerk manner, the report went on to say.

Tourism, transport, retail, hotels and restaurants would see severe declines in demand, as well as supply shocks due to disruption of the workplace.

The best antidote, Brahmbhatt said, is a transparent public information policy at the political level. The public must trust the government and the government must have confidence in its population if it hopes to minimise panic and economic disruption.