SARS is the first deadly infectious disease of the 21st century. It started in the Chinese province of Guangdong in November 2002, and by August 2003, it had spread to 29 countries and 3 regions, with a cumulative total of 8,422 cases and 916 deaths. This paper describes the spread of the disease in Hong Kong and discusses its impact on the economy. SARS was an unexpected negative shock. The most significant negative effects were on the demand side, with local consumption and the export of services related to tourism and air travel severely affected in the short run. The economy did not experience a supply shock, as the manufacturing base in the Pearl River Delta was unaffected, and goods continued to be exported through Hong Kong normally. Initial alarmist reports and estimates about the negative economic impacts were not borne out. Fear and panic subsided quickly once the outbreak was under control, and the economy rebounded rapidly. Copyright (c) 2004 Center for International Development and the Massachusetts Institute of Technology.