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| Airlines have grounded flights, banks have sent staff home. In China and worldwide, the virus has taken its toll |
‘Black
swan’ coronavirus casts its shadow over the global economy
The
Observer
Global
economy
Jasper
Jolly, Gwyn Topham, Zoe Wood and Kalyeena Makortoff
With the
coronavirus outbreak spreading far beyond its source in China, companies are
braced for a hit on profits as demand slumps and production is disrupted in the
world’s second largest economy and beyond.
Executives
face weeks of uncertainty over how many people will catch the virus worldwide
and what the full impact will be. Daniel Zhang, the boss of China’s biggest
listed company, Alibaba, described the coronavirus outbreak as a potential
“black swan” event that could derail the global economy.
Here are
some of the main industries affected so far.
Airlines
The virus
has prompted 21 airlines to cancel all flights to mainland China, including
Delta, United, Qantas and Air France/KLM.
According
to travel data and analytics firm Cirium, more than 85,000 flights touching
China have been cancelled in the three weeks since the outbreak closed Wuhan airport
on 23 January, the vast majority of which were domestic.
British
Airways has cancelled its daily Beijing and Shanghai services, and Virgin has
suspended Shanghai flights, both until the end of March. BA will have lost
24,000 passengers scheduled to fly before the end of this month. With the
suspension of flights extended through March, that number could double.
Among the
big international carriers, Hong Kong-based Cathay Pacific has been hit
hardest, cancelling 90% of flights to the Chinese mainland bar the biggest
cities. About 30% of its network capacity has been cut, and it has asked its
27,000 employees to take unpaid leave to help it stay afloat.
With
China’s airline industry at the heart of the outbreak, its carriers have been
looking to refinance, according to aviation leasing companies.
Gwyn Topham
Luxury
goods
London
fashion week is in full swing but Chinese journalists and buyers are
conspicuous by their absence. Their decision to stay away is a major blow to a
£230bn personal luxury goods industry that has come to rely on China’s massive
spending power. Chinese shoppers are the biggest buyers of designer clothing
and handbags – but as they stay away from the shops, and travel restrictions
curb overseas shopping sprees, the big fashion brands are starting to suffer.
Bad news is
being drip-fed into the market by the luxury brands. Burberry has closed a
third of its 64 Chinese stores, with reduced hours at those still open because
shopper numbers have plunged 80%. The company has suspended its financial
guidance for this year, saying it is too early to gauge what the impact on
profits will be.
Tapestry,
whose brands include Coach and Kate Spade, and Capri, the owner of Michael
Kors, Versace and Jimmy Choo, have also cut their profit forecasts. Analysts at
investment bank Jefferies have slashed their 2020 sales growth forecast for the
industry from 5% to just 1%.
Morningstar’s
equity analyst Jelena Sokolova predicts the short-term impact of coronavirus
will be greater than Sars in 2002-03 because Chinese buyers now account for 35%
of the spending on designer fashion, compared with just 2% nearly 20 years ago.
Zoe Wood
Factory
shutdowns
Data
company Dun & Bradstreet say an estimated 5 million companies have Chinese
suppliers – from Apple, whose supplier Foxconn postponed the reopening of its
Shenzhen factory, to food companies Kraft Heinz and PepsiCo, which have closed
Chinese factories.
The
outbreak could barely have come at a worse time for struggling carmakers. Wuhan
is a major centre of automotive manufacturing. France’s Renault and Peugeot,
Germany’s Volkswagen and BMW, as well as Jaguar Land Rover, Britain’s largest
carmaker, have still not reopened factories run with Chinese partners. Honda
yesterday postponed the reopening of its Wuhan plant for another week, while
Hyundai has shut its huge factory in Ulsan, South Korea, for lack of parts.
Tim
Lawrence, head of manufacturing at PA Consulting, said components can take six
to eight weeks to reach European factories from China. “None of them run with a
lot of fat,” he said. “It takes a while to find other sources.”
JCB, one of
the UK’s biggest private companies, has said it would cut back production
because the virus has shut down a quarter of its suppliers in China. Fiat
Chrysler warned production in Europe could be threatened within a fortnight.
Nissan has already paused production lines at its Japanese plants.
The impact
on some of the big banks operating in and around China will be made clearer
this week as they unveil first-half results. Analysts at Morgan Stanley expect
them to be “very weak” as a result of a rapid slowdown in loan growth and a
reduction in fee income.
Several of
the big banks, including HSBC and Standard Chartered, have unveiled plans to
help struggling small businesses, waiving fees on credit card payments and
allowing interest-only loan repayments.
HSBC sent
home staff in Hong Kong and Singapore on Friday after an employee was placed
under government quarantine. Those staff in contact have been told to observe a
14-day period of self-isolation.
Oil
The
economic slowdown has dampened commodity markets, particularly given China’s
key role as the driver of demand growth. Copper prices hit four-month lows
before rebounding slightly, while the price of chartering ships has fallen.
China
accounted for more than three-quarters of growth in global demand for oil last
year, according to the International Energy Agency, which expects demand to
fall this quarter for the first time in more than a decade.
The virus
has hit volatile markets, with prices for Brent crude oil futures falling to a
six-week low of $53.11 per barrel on Monday. However, oil producers are
contemplating cutting production, helping to buoy Brent prices back up to $57
by the end of the week – but they are still about 13% down this year.
Weakness in
demand has triggered a scramble for oil storage in eastern China from traders
hoping to sit out the price dip. Giant tankers capable of holding more than 2
million barrels of crude have been stranded off the Chinese coast, unable to
unload at the Qingdao import terminal, according to Refinitiv data.
Jasper Jolly
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