Coronavirus Outbreak Deepens Its Toll on Global Business

Coronavirus Outbreak Deepens Its Toll on Global Business


A loss of $29 billion in airline revenue. China auto sales down by 92 percent. Interruptions for Procter & Gamble’s 387 suppliers in China.

As the coronavirus outbreak rattles the global economy and disrupts supply chains, international companies across nearly every industry are confronting a stark reality: Business will not go on as usual.

And investors have taken notice. U.S. stocks fell for the second-straight day on Friday. Shares of energy, airline and technology companies led the broader market lower on Wall Street, as the S&P closed more than 1 percent lower, putting it on pace for its worst day of the month. Oil and gas prices also fell, with the price of a barrel of benchmark American crude slipping nearly 1 percent. The markets have become more volatile since the outbreak, but American investors have largely shrugged off the threat. Since Jan. 7, when Chinese officials identified the virus, the S&P 500 remains up more than 3 percent, even after this morning’s sell-off. — Matt Philips

The International Air Transport Association this week warned of a deep downturn in earnings among global carriers related to the collapse of travel in Asia because of the virus.

The virus outbreak could reduce global airline revenue by about $29 billion in this year, resulting in a small industry contraction compared with 2019, it said.

Virtually all of the losses are expected to hit airlines in the Asia-Pacific region, which are facing a 13 percent decline in passenger demand for the year, according to the association’s analysis.

Some airlines have begun to acknowledge the outbreak’s effects, with Air France-KLM Group and Australia’s Qantas Group separately warning on Thursday of a potential financial hit.

Qantas said that the coronavirus could reduce its profit for the fiscal year that ends June 30 by $66 million to $99 million, while Air France-KLM estimated a hit to earnings of as much as $216 million between February and April this year.

More than 20 international airlines have suspended or restricted routes that end in Wuhan, the center of the outbreak, and other major Chinese cities.

  • Updated Feb. 10, 2020

    • What is a Coronavirus?
      It is a novel virus named for the crown-like spikes that protrude from its surface. The coronavirus can infect both animals and people, and can cause a range of respiratory illnesses from the common cold to more dangerous conditions like Severe Acute Respiratory Syndrome, or SARS.
    • How contagious is the virus?
      According to preliminary research, it seems moderately infectious, similar to SARS, and is possibly transmitted through the air. Scientists have estimated that each infected person could spread it to somewhere between 1.5 and 3.5 people without effective containment measures.
    • How worried should I be?
      While the virus is a serious public health concern, the risk to most people outside China remains very low, and seasonal flu is a more immediate threat.
    • Who is working to contain the virus?
      World Health Organization officials have praised China’s aggressive response to the virus by closing transportation, schools and markets. This week, a team of experts from the W.H.O. arrived in Beijing to offer assistance.
    • What if I’m traveling?
      The United States and Australia are temporarily denying entry to noncitizens who recently traveled to China and several airlines have canceled flights.
    • How do I keep myself and others safe?
      Washing your hands frequently is the most important thing you can do, along with staying at home when you’re sick.

And airlines in Asia are cutting flights elsewhere. Singapore Airlines said it would temporarily cut flights between the city state and major destinations like New York, Paris, London, Tokyo, Seoul and Sydney.

Cathay Pacific, the Hong Kong carrier, has also canceled nearly all of its flights to mainland China and is reducing service elsewhere over the next two months. — Niraj Chokshi and Amie Tsang

Auto sales in China collapsed this month, with the Chinese Passenger Car Association saying that sales at dealerships had plummeted 92 percent in the first half of February compared with the same time last year.

China is the world’s biggest car market by a wide margin. So a nose-dive in sales there hurts the global industry.

The German luxury auto giant Daimler — which makes Mercedes-Benz — cautioned in its annual report that the virus could lead to a significant drop in Chinese economic growth. The report said the virus “may not only affect the development of unit sales, but may also lead to significant adverse effects on production, the procurement market and the supply chain.”

Jaguar Land Rover warned that the coronavirus could soon begin to create production problems at its assembly plants in Britain.

Like many carmakers, Jaguar Land Rover uses parts made in China. With factories there shut down or operating at reduced capacity, assembly lines in the rest of the world are expected to run short of essential components. — Keith Bradsher

With much of China still on lockdown, businesses are struggling to get workers back and factories running.

In a release this week, Foxconn, the world’s largest contract manufacturer of electronics and a key player in Apple’s supply chain, indicated just how difficult that will be. Foxconn said its revenue would take a hit from the spread of the coronavirus, and that it would be “cautious” in resuming work at its factories in China. Plants outside of the country, in places like Vietnam and Mexico, were at full capacity, the company said.

The revenue warning comes as Chinese leaders try to balance restarting the economy with controlling the virus. Concerns about Foxconn’s production also underscore the potential broader impact the epidemic could have on global electronic supply chains. A huge portion of the world’s electronics come out of China’s factories, filled with parts also made in China’s factories, and a longer suspension of production could hit overall supply. Some have even warned that it could hasten a decoupling, which has been urged at times by both Chinese and American leaders out of security concerns. — Paul Mozur

Procter & Gamble, the consumer products behemoth, said in a federal filing this week that disruptions to supply and demand caused by the outbreak would “materially” affect the company’s quarterly results.

“China is our second largest market — sales and profit,” Jon R. Moeller, a company executive, said at a conference in New York on Thursday, according to the filing. “Store traffic is down considerably, with many stores closed or operating with reduced hours. Some of the demand has shifted online but supply of delivery operators and labor is limited.”

The company relies on 387 suppliers in China, each facing difficulties in resuming operations, Mr. Moeller said. — Niraj Chokshi

The French government said it would urge companies to review their “over-dependence” on China for raw materials and parts as the outbreak exposes weaknesses among French manufacturers that have outsourced their supply chains there.

The French finance minister, Bruno Le Maire, singled out automakers, which have been having trouble getting parts like brake pedals, and the pharmaceutical industry, which gets 80 percent of the raw materials for some drugs from China and Asia.

The government estimated the economy may shrink by around 0.1 percent this year as result of the outbreak. Wuhan, the center of the outbreak, is home to more than one third of all French investment in China. — Liz Alderman

China’s banks are lowering borrowing costs for companies and households to try to soften the economic blow of the coronavirus.

The move follows a rash of policies from China’s central bank to shore up an economy hobbled by weeks of a near nationwide shutdown of business. On Thursday, the People’s Bank of China said it lowered the one-year loan prime rate to 4.05 percent from 4.15 percent, and slashed the five-year loan rate to 4.75 percent from 4.8 percent.

Economists are lowering their growth expectations for China this year as businesses are only just beginning — somewhat haltingly — to get back to work. Some said the move would do little to address the widespread impact of the epidemic on China’s once vibrant business community. — Alexandra Stevenson

Adidas, the German sportswear maker, said that its mainland China business had been decimated by the outbreak.

Sales in the region dropped by about 85 percent since Chinese New Year on Jan. 25, the company said, compared with the same period a year ago. Fewer shoppers in South Korea and Japan also contributed to the falloff in sales, a result of the sharp drop in Chinese tourism that has also affected the aviation and hospitality sectors as well as the fashion retail business.

Adidas sells its products from about 12,000 stores in China, around 500 of them its own stores and the rest franchises. — Elizabeth Paton

Geneva Abdul contributed reporting.



Source link

About The Author

We report the News from around the Globe. Please support our advertisers.

Related posts

Leave a Reply