Coronavirus epidemic to cost global economy £217bn in first quarter, say experts

Burberry and Fiat among companies sounding alarm as outbreak threatens to hurt businesses around world

Chris Baynes
Friday 07 February 2020 18:19

The coronavirus outbreak will cost the world’s economy more than £217bn in the first quarter of this year, experts have estimated.

Capital Economics predicted global GDP growth would stall for the first time in more than a decade, even if the epidemic is brought under control soon.

The warning came hours after luxury fashion brand Burberry scrapped its profit forecast for the year as the coronavirus outbreak threatens turmoil for global businesses.

European car manufacturers and beauty companies including L’Oreal were among other firms sounding the alarm about the epidemic’s economic impact on Friday, as factory shutdowns, travel restrictions and quarantines imposed by Chinese authorities take their toll.

Analysts have cut forecasts for GDP growth in China, where more than 31,000 people have been infected with the virus and 637 have died.

Many factories, shops and restaurants across the country have closed as Chinese authorities place cities on lockdown in a bid to stop the spread of the disease. Transport restrictions have also been disrupting supply chains around the world.

Simon MacAdam, global economist at Capital Economics, said: “For now, our best guess is that the economic disruption related to the coronavirus will cost the world economy over $280bn in the first quarter of this year. If we’re right, then this will mean that global GDP will not grow in quarter-to-quarter terms for the first time since 2009.”

He added GDP was forecast to return to pre-outbreak levels by the middle of next year, providing the virus is contained soon and lost output is made up in subsequent quarters.

“The big picture is that, assuming the economic disruption comes to an end soon, the coronavirus will probably end up just delaying the global economic recovery in 2020, rather than cancelling it altogether,” Mr MacAdam said.

On Friday, Burberry said its sales in mainland China had declined 70 to 80 per cent in the past two weeks amid reduced customer visits and trading hours. The British luxury fashion house has closed 24 out of its 64 shops in the country as a result of the coronavirus epidemic.

China and Hong Kong are two of the brand’s most important markets, with analysts estimating last month that Chinese sales would account for 46 per cent of its trade this year.

Burberry’s shares fell nearly 5 per cent in early trading on Friday after chief financial officer Julie Brown said uncertainty over coronavirus meant the company could no longer stand by its previous forecasts for the financial year ending in March.

Analyst Luca Solca, of asset management firm Sanford C Bernstein, said Burberry’s warning was likely to be “the first of a string of painful announcements”.

Cosmetics brand Estee Lauder cut its profit forecast for 2020 this week as a result of the coronavirus epidemic, while L’Oreal expects the crisis to have a short-term hit in its Asian business – its key sales driver.

Japanese clothing retailer Uniqlo has closed 350 of its 750 stores in China to comply with closures of public transport and shopping centres. About a fifth of the brand’s global sales come from the country.

The US Federal Reserve warned in a report to congress on Friday that coronavirus “could lead to disruptions in China that spill over to the rest of the global economy”.

In Europe, car production could face delays as coronavirus shutdowns in China affect parts supply to major factories.

Fiat Chrysler Automobiles announced it had “identified potential risk within the next two to four weeks at one manufacturing facility in Europe,” and there were concerns that this could affect other manufacturers across the continent and in the UK.

David Leggett, automotive editor at analytics firm GlobalData, warned the next few weeks were “critical” for vehicle manufacturers because “the typical car is made up of 20,000 parts, and there is an elongated supply chain of parts and sub-assemblies put together in complex sequence to create the finished vehicle”.

He added: “We have been waiting for this and it is an inevitable consequence of the deepening and spreading economic impact of the coronavirus, especially on manufacturing supply chains.”

Many factories in Hubei province, the epicentre of the outbreak, have been shut since the beginning of the Chinese new year holidays three weeks ago.

Electronics giant Foxconn, which manufactures Apple’s iPhone, has switched some of its production to surgical masks to protect its workers from infection and keep factories open.

The Taiwanese firm aims to be making 2 million masks a day by the end of the month, and said it would begin supplying them externally once its workforce had been fully kitted out.

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