Coronavirus: ECB takes note as Air France, Maersk and Foxconn count the costs

The ECB’s growing confidence that the eurozone economy was on the mend may suffer a setback as the continent reels from the economic fallout of the coronavirus, a leading economist has said.

Coronavirus: ECB takes note as Air France, Maersk and Foxconn count the costs

The ECB’s growing confidence that the eurozone economy was on the mend may suffer a setback as the continent reels from the economic fallout of the coronavirus, a leading economist has said.

The deadly virus has paralysed or disrupted a large part of China’s manufacturing — and the knock-on effect on many global businesses has been significant, because China makes so many products for world markets, and its consumers account for a healthy slice of spending on consumer goods.

Europe’s largest economy, Germany, has been particularly affected because its car and electronics firms depend on sourcing parts from China for its own finished exports.

Now, Jessica Hinds, Europe economist at Capital Economics in London, said that the coronavirus could weigh on the ECB decisions.

“The account of the ECB’s January meeting suggests that the ECB was becoming a little more positive on the economic outlook. But weak data and the spread of the coronavirus since then will have surely added to the downside risks,” she said.

Although the fallout for the eurozone from the virus was “still unclear”, Ms Hinds noted remarks by ECB vice president Luis de Guindos that the virus had added “a new layer of uncertainty”.

Air France-KLM became the latest European company to warn of a financial hit after cancelling direct flights to China this month.

It warned the hit could be as much as €200m to earnings, citing the “brutal” fallout on the airline industry.

Shares in Air France, Lufthansa, and British Airways owner IAG — which also owns Aer Lingus — have fallen in recent weeks.

Following the warning by Apple this week that it will miss its quarterly revenue target due to the coronavirus disruption, iPhone maker Foxconn said it is cautiously restarting production at its main plants in China, but warned that revenue will be hurt this year.

Foxconn — the world’s largest contract manufacturer — also said its plants in countries such as Vietnam, India, and Mexico continue to operate at full capacity.

Danish shipping giant Maersk warned the coronavirus outbreak would weigh on earnings this year, compounding the woes of a container shipping industry already subdued by trade wars and an economic slowdown.

Maersk, which reported a lower-than-expected fourth-quarter profit, forecast a weak start to the year because factories in China were closed for longer than usual.

“Weekly container vessel calls at key Chinese ports were significantly down compared to last year during the last weeks of January and the first weeks of February,” Maersk said.

But Lenovo, the world’s biggest PC maker, posted a better than expected profit and said its global operations would help it tackle short-term headwinds from China’s coronavirus outbreak, sending its shares higher.

The Chinese company reported an 11% rise in net profit for its third quarter ended in December thanks to strong demand for its PCs and smart devices.

Lenovo is among companies facing disruptions to their supply chain after local governments in China extended a Lunar New Year holiday amid the strict travel curbs to limit the spread of the coronavirus.

One of Lenovo’s biggest factories is in the central Chinese city of Wuhan, the epicentre of the outbreak, where businesses remain shut.

Global stock markets were mixed in the latest session.

Then Eurostoxx index, which tracks the largest continental European companies, slipped back — but the Ftse-100, which includes many international companies, rose slightly.

Chris Beauchamp, chief market analyst at online broker IG, said investors were watching for more signs for the spread of the coronavirus in South Korea and Japan.

“But the pause may not last long since this market has shown scant regard for the doom-laden predictions of the virus,” he said.

Additional reporting by Reuters

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