Can't connect right now! retry

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!

add The News to homescreen

tap to bring up your browser menu and select 'Add to homescreen' to pin the The News web app

Got it!
July 31, 2020

Planes, cars, oil, GDP... the virus bill is coming due


July 31, 2020

Paris: Oil majors, plane manufacturers, carmakers, double-digit falls in GDP: the global economy is now paying the bill for the coronavirus pandemic as uncertainty remains over the recovery.

The numbers are head-spinning. The economy of Germany, the largest in Europe, contracted by 10.1 percent in the second quarter from the first three months of the year.

Meanwhile the US economy contracted by 32.9 percent in the second quarter at an annualised rate. "GDP is a rearview mirror," said Ludovic Subran, chief economist at insurance giant Allianz.

"It shows us the crest of the wave, the black hole of the crisis," he told AFP.

In a flurry of announcements on Thursday the stalwarts of the old economy showed the financial scars they suffered as countries around the world forced people to stay at home and many businesses to shutter in a bid to slow the spread of the virus that causes COVID-19.

Later several US giants of the new economy -- Apple, Google parent Alphabet, Facebook and Amazon -- will reveal how they fared.

Oil companies have been paying an especially high price as the lockdowns triggered a collapse in the price of crude. That has forced them to take huge charges to write down the value of assets that are worth less due to the lower oil prices.

Shell on Thursday posted a second-quarter net loss of $18.1 billion, France´s Total $8.4 billion and Italy´s Eni $4.4 billion.

The aviation industry has also been hit hard as the lockdowns that brought air travel to a near halt and a return to normal is not seen before 2023.

That has rebounded onto planemakers. Airbus said Thursday it burned through over 12 billion euros in cash in the first half of the year and suffered a net loss of 1.9 billion. It plans to slow production by 40 percent.

Its rival Boeing announced a $2.4 billion loss on Wednesday and said it would ratchet back production after having already announced plans to lay off 10 percent of its workforce.

Automakers are also having a tough time as the stay at home orders kept buyers away from dealerships.

French automaker Renault reported a 7.3-billion-euro half-year loss, partly thanks to trouble at its Japanese partner Nissan but also due to writing down the value of assets. The firm has already announced 15,000 job cuts.

Meanwhile Germany´s Volkswagen reported a 1.4 billion pre-tax loss for the first six months of the year.

"Although the situation is unprecedented, it is not final," said Renault´s new chief executive Luca de Meo, promising a rebound.

A rebound is on everyone´s mind but no one is quite sure what it looks like yet.

At best it will be V-shaped: a steep drop followed by a sharp jump back.

ING bank economist Carsten Brzeski said he expects to see "a strong rebound" in Germany´s economy in the third quarter.

But he also said the road to recovery would be "uneven" and long, which would be more like a check mark. Industrial heavyweights are also suffering.

Steel giant ArcelorMittal saw losses deepen to $559 million as sales slumped by 43 percent.

Food companies have had a mixed time of it. Some benefitted from households initially stockpiling but those who sell many products to cafes and restaurants have taken a big hit.

Nestle saw sales growth slow and managed an increase in profits only thanks to asset sales. Meanwhile Danone said sales fell 8.3 percent in the second quarter, mostly due to a plunge in sales of its bottled waters in restaurants, but it held profits nearly steady.

For Procter & Gamble, strong sales of cleaning products and soaps more than compensated for lacklustre demand for shaving products, helping it increase sales and post $2.8 billion in net profit for the quarter.

Some tech and pharma companies have weathered the crisis well.

South Korean tech giant Samsung Electronics defied the coronavirus to report Thursday higher net profits in the second quarter, with strong demand for memory chips overcoming the pandemic´s impact on smartphone sales. Its net profit climbed 7.3 percent.

Swiss pharma giant Novartis last week reported a six percent rise in sales in the first half of the year which helped drive a nine percent gain in profit to $4 billion.

"This crisis is very Darwinian, it is affecting countries and sectors very differently," said Allianz´s Subran.

He warned it could have a "double trigger" impact with the initial shock on activity followed by "sectors weakened in terms of profitability being forced to adjust to a slower business environment."

Many businesses are likely to need to change their business models in light of the crisis, but a big question is whether they will be able to find money to make necessary investments.

Subran said that the crisis also showed where potential for growth lies, such as the digital economy and online commerce.