Coronavirus: The economic effects are looking scarier by the day

January 31, 2020, 11:19 AM UTC

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Good morning. David Meyer here in Berlin, filling in for Alan.

The Wuhan coronavirus is now a global health emergency, per the World Health Organization. The body took pains to recommend no travel restrictions, “based on the current information available,” but those words seem to be coming too late.

The U.S. State Department last night warned Americans not to go to China, and to consider leaving if they are there. Italy is also blocking flights to and from China. Many companies have already told their staff not to travel to or from China for now. Concerts are being cancelled, and there are calls for the Art Basel Hong Kong art fair to be scrapped too. The list of airlines that have suspended flights to the country (to varying degrees) now includes 19 names.

The official death toll now stands at 213, all within China’s borders. There are almost 9,100 confirmed infections there—more than the global number of infections during the SARS epidemic—and 130 in other countries, with person-to-person transmissions having taken place in Thailand, Germany, France, the U.S., Vietnam, Japan and Taiwan.

As the WHO’s stance reflects, the situation does not seem likely to improve anytime soon—though the organization did also say that “it is still possible to interrupt virus spread” if countries get their act together. Needless to say, the duration of this crisis will have enormous implications in both human and economic terms.

Economist Andy Xie wrote today in the South China Morning Post that a four-week lockdown in China—the optimist’s scenario—would result in around 2% being shaved off quarterly GDP. Longer crisis, more damage. And all this is coming as U.S. recession warnings resurface in the shape of the by-now-notorious yield curve inversion.

A trivial anecdote that nonetheless hints at the ripple effect we might soon see: Four weeks ago, I ordered a guitar effects pedal from a small manufacturer here in Germany. It still hasn’t arrived—the maker has 70 of the things sitting in his workshop, all built except for the knobs. He gets those from a supplier in China, but the Lunar New Year holiday, extended due to the crisis, has left him empty-handed. So now he’s scrambling to find new suppliers who can deliver.

As I say, a dumb little story on its own. But let’s see where the cumulative effect of this crisis ends up.

More news below. And let me also note that, on this Brexit Day, I feel great sadness—along with other British citizens, I will this evening lose my EU citizenship. As I wrote yesterday, little will change immediately, because of the transition period that runs through the rest of 2020. But today nonetheless carries enormous weight, symbolically and emotionally. I can only hope that the U.K., which now ventures out on its own into a very uncertain global landscape, does indeed find prosperity.

David Meyer


Rometty out

Ginni Rometty will step down as IBM's chief executive, to be replaced by cloud SVP Arvind Krishna. Rometty has been with Big Blue for four decades, and a host of other top CEOs paid tribute to her yesterday. But IBM's share price has fallen 15% during her seven-year tenure as CEO, and the bump to that price on the news of her departure signaled investors' pleasure at the prospect of a new chapter. Fortune

Amazon revenues

Amazon's share price popped 10% in after-hours trading, thanks to the company hitting a new Q4 sales record. Profits were up 8% for the quarter, having fallen by 25% in Q3—Q4 profits handily beat Amazon's own estimates, and EPS of $6.47 blew way past analyst estimates of $4.04. Raymond James analyst Aaron Kessler: "The fact that they have been able to offer one-day shipping and also at the same time drive some efficiency has to please investors." Wall Street Journal

Vaping hit

Tobacco giant Altria revealed a $4.1 billion impairment charge for its investment in Juul, the e-cigarette firm that faces growing numbers of legal cases over its alleged targeting of teens. After Altria posted a Q4 loss yesterday, its stock fell by as much as 7%. Bloomberg

French Connection

Fashion retailer French Connection has scrapped plans to sell the company and intends to instead focus on growth in e-commerce and its U.S. wholesale business. It had been under investor pressure to explore a sale, and the news of its strategic change resulted in the immediate loss of a third of its share price. Reuters


U.S. jobs

Commerce Secretary Wilbur Ross has raised eyebrows by saying the coronavirus "will help to accelerate the return of jobs to North America." Democrats said the comment was inappropriate, while at least one economist said it was "weird." Simon Baptist of the Economist Intelligence Unit: "Companies are not going to make serious and long-term investment decisions on the basis of an outbreak of a disease that might last three to six months." BBC

Tesla protest

Placards saying "No killer factory in Grünheide" were probably not the reaction Elon Musk was expecting when he announced Tesla's plans to build a plant in the little Brandenburg town. But that's what he got, as residents fret about issues ranging from water consumption to bat protection and traffic jams. Financial Times

Aston Martin

Lawrence Stroll, the Canadian billionaire who made his name investing in the fashion and motor-racing sectors, is to pay around $263 million for an up-to-20% stake in Aston Martin, the ailing British carmaker. CEO Andy Palmer: "He brings with him his experiences and access to his Formula 1 team. We’ve talked a lot in the past few years about wanting to be clearly rooted in luxury and obviously Mr Stroll knows an awful lot about luxury." CNBC

VW offer

Volkswagen has offered to buy the rest of Navistar International, as part of its push for growth in the U.S. heavy-truck market. VW's Traton unit currently relies too much on Europe and South America, but this move could help it better compete with Daimler and Volvo in North America. Fortune

This edition of CEO Daily was edited by David Meyer.

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