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Alibaba: Coronavirus is having a broad impact on China's economy – Aljazeera.com

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Alibaba Group Holding Ltd. warned that the coronavirus responsible for killing more than 1,300 people in China is exerting a fundamental impact on the country’s consumers and merchants, and will hurt its revenue growth in the current quarter.

Alibaba, the first major Chinese technology corporation to report results since the epidemic emerged in January, said the virus is undermining production in the economy because many workers can’t get to or perform their jobs. It has also changed buying patterns with consumers pulling back on discretionary spending, including travel and restaurants.

The Chinese e-commerce giant made the comments after reporting strong financial results for the quarter that ended in December. Revenue surged a better-than-expected 38% to 161.5 billion yuan ($23.1 billion), while net income rose 58% to 52.3 billion yuan.

But Chief Executive Officer Daniel Zhang and Chief Financial Officer Maggie Wu were clear about the fallout from the deadly virus on employees, suppliers and merchants. Many merchants that work with the company have not been able to return to normal operations because of a shortage of employees. Alibaba’s U.S.-listed shares slid as much as 2.4% Thursday morning.

“The epidemic has negatively impacted the overall China economy, especially the retail and service sectors,” said Wu in a conference call after the results. “While demand for goods and services is there, the means of production in the economy has been hampered by the delayed opening of offices, factories and schools after the Lunar New Year’s holiday.”

Asked about the affect on Alibaba, she voiced caution about giving estimates because it’s only halfway through the March quarter.

“Overall revenue will be negatively impacted,” she said, adding that the hit to growth could be “significantly” negative.

Zhang said that they are seeing relatively large changes in buying patterns. While food delivery is growing, areas like clothing and electronics are running into logistical problems. He warned that the core e-commerce business suffered a negative impact in the first two weeks after the holiday. Restaurant orders and travel bookings have also taken hits.

“It will present near term challenges to Alibaba’s businesses across the board,” he said on the conference call, adding that there will also be opportunities.

Alibaba is rolling out special programs to support merchants, including lowering the fees it charges and providing subsidies for delivery personnel. Zhang said the company is trying to keep its own staff safe, including having many work from home.

Zhang added that more workers are going back to work in Beijing, Guangzhou and Shenzhen. Many logistic companies are also recovering their capacity in the past 12 days.

Already, China’s most valuable corporation has struggled to sustain growth rates during an economic slowdown in its home market, and is now grappling also with the uncertainty of the coronavirus outbreak. While widespread home confinement is spurring demand for online services from grocery delivery to office apps to streaming entertainment, the disease is snarling nationwide transport and threatens in the long run to dent the consumer spending Alibaba depends on.

The disruption to Alibaba’s business from the virus “may be worse than feared,” wrote Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam in a report. “Alibaba’s sales may contract in its core China retail marketplaces and local services business in the coming quarter even if the coronavirus outbreak subsides, as logistic and production disruptions faced by merchants could take time to resolve.”

This week, the company declared a waiver of some service fees for merchants on its main direct-to-consumer Tmall platform to help those struggling with the fallout from the outbreak. That may further depress the top-line in 2020.

“It was always thought that Alibaba’s core commerce revenue would have the brakes applied to it either because of China’s macroeconomic condition, or slower user growth,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina. “But what this coronavirus event forces us to do is to consider a third scenario – where Alibaba’s revenue will take a hit from a reduction in merchant fees and advertising spend.”

Alibaba has shed 1.4% of its value since a broader Chinese selloff began in January, underperforming arch-rival Tencent Holdings Ltd., which as a mobile gaming and social media operator is better shielded in the short run from the epidemic.

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The Brexit trade-off with the economy is under way – BBC News

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  • The British economy has embarked on a historic change, involving at least some pain, some opportunities and an uncertain destination.
  • The immigration policy changes will have far reaching consequences.
  • Business has been served notice that the economy will take a lower priority than ‘getting Brexit done’.

The history books will record 31 January as the day Britain exited the European Union.

But historians should give at least as much status to 19 February – the day the Brexit rubber hit the road.

It’s been a long time coming and businesses can’t say they weren’t warned.

Perhaps they thought, until December’s election, that Brexit wouldn’t happen, or that the interests of the economy would prevail in the end.

But the new plans for a points-based immigration system confirmed their fears – that in the trade-off between ‘getting Brexit done’ and economic performance, the latter will be the loser.

In charge of this policy, Priti Patel continues the approach taken by Theresa May when she was home secretary – setting out policy in bold, stark, uncompromising terms, presumably because that’s what Leave voters expect and understand.

It may yet be that the policy is softened at the margins, as exceptions are made for the care sector, and perhaps a bit more for farming.

But for now, this is immigration policy in high-contrast monochrome.

The war zone

Some form of exception may also have to be found to save Scottish Tory faces. Jackson Carlaw’s party made an election commitment in December to have an immigration policy that works for Scotland’s demographics and economy, and it’s not clear that message has yet reached the Home Office.

Going out to explain the policy and how it will work for Scottish employers seemed to be beyond every rank of Tory contacted by BBC colleagues. It seems they were all too busy on Wednesday.

Forced to comment by Holyrood journalists on Thursday, the Scottish Tory leader fell some way short of enthusiastic support for Ms Patel’s plans, instead suggesting that elements of the SNP government’s approach are worthy of consideration.

Let’s see how that plays when Mr Carlaw’s memo is lobbed into the Whitehall war zone that is, we’re told, Priti Patel’s private office.

Points mean prizes

For Scottish business, there were elements of the Patel proposals to be welcomed, in that they were less bad than the previous draft.

There is a four-fold rise, to 10,000 across Britain, in the visas for farm workers. And the £30,000 threshold for getting a visa has been lowered, on the advice of the UK government’s migration advisory committee.

The vague talk of “an Australian-style points system” which featured in the election campaign, had meant next to nothing.

But it became less vague when points were set out for salary, job offer, qualifications, more for a doctorate, and more still for a science and technology PhD – “the best and the brightest”. Throw in English language skills, and you might get the 70 points for entry into the UK jobs market.

Employers already used to the visa regulations for non-EU migrants find it “notoriously complex and costly”, according to the Federation of Small Businesses in Scotland.

So once applied to every foreigner, including the high proportion of small firms in Scotland that have got used to European recruitment, it’s a daunting prospect.

Activating the ‘inactive’

There’s an exceptionally low level of unemployment across the UK these days – statistics which sit oddly with the lack of growth or confidence to be found in other data.

So the home secretary has pointed to the 20%-plus who are designated “economically inactive”.

If anyone in her private office had explained to her that these people include those who stay at home to care for their children or for elderly parents (including, one imagines, quite a lot of bedrock Tory voters), plus those who are full-time students or suffering from long-term illness, then the briefing hadn’t sunk in.

In other words, the economically inactive are not sitting idly at home, available to be sparked into activity as care home workers through the gently persuasive powers of a Home Office taser. Or even a rise in starting pay.

Call for flexibility

The CBI was more polite than most business groups, arguing that the choice should not be between training up British workers or recruiting from abroad. Instead, it requires a bit of both.

The construction industry pointed out that shutting off access to Europe’s skilled workforce will mean higher pay.

Trade unions don’t like to look anti-foreigner, but they have seemed uncharacteristically quiet about this, public sector Unison being an exception. In the private sector, they won’t be complaining if skill shortages give them pay bargaining leverage.

However, the construction industry’s representative pointed to the further consequence of pay inflation – that government priorities of building more housing and tackling climate change will become more expensive. That goes for the household shopping basket too.

The visa plans’ airy dismissal of migrant workers with ‘low skills’ no longer being allowed in to Britain offered a strange sort of opportunity, at least for the care sector.

Donald Macaskill, who speaks and negotiates on behalf of Scotland’s private care homes, offered up a blistering denunciation of those who think caring for those with dementia have ‘low skills’.

He was visibly angered.

And this was a chance to point out that demographics and labour shortages require us to think very differently about the lower-paid care workers with superhuman levels of patience and devotion to the care of elderly people.

‘A change is gonna come’

It would be hard to overstate the significance of the change that is now under way.

In the past forty-plus years, there have been waves of massive and sometimes painful change in the British economy, including the clear out of heavy industries and mining, and later of the electronics assembly of Silicon Glen.

With each wave of closures, there was a re-orientation of the economy, adjusting to the seamless supply chains and markets of the growing and integrating European market, and ever more dependent for labour on the skills and flexibility that the vast European labour pool offered.

With the labour market plans set out on 19 February 2020, all that is set to change.

The future economy may see British-born workers on higher pay, with more skills and at the cutting edge of automation, breaking free of petty regulations to occupy the sunny uplands of the 21st century global economy.

That’s the theory, but it’s far from guaranteed.

Meanwhile, the only certainty about the transition, wherever it takes us, is that it will take time and it will involve some painful dislocation.

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Surging Dollar Reflects the Standout U.S. Economy – The New York Times

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The dollar climbed to its highest level in years this week, a reflection of the standout status of the American economy against a global backdrop clouded by the coronavirus.

Pessimistic economic updates from Japan, Britain and Germany have only added to the uncertainty created by the coronavirus, which all but idled China’s economy for weeks.

The slowdown has stimulated a rush into American stocks and bonds, as global investors exchanged their currencies for dollars — pushing the value of the dollar higher — and then used those dollars to snap up financial assets.

“People are spooked by the coronavirus, and the global economy is weakening. It’s struggling mightily,” said Bob Schwartz, a senior economist at Oxford Economics in New York. “And whenever this happens, you see a capital flight into dollar-denominated assets.”

The U.S. dollar index, which measures the dollar’s value against six currencies of major trading partners, is up more than 3.6 percent this year, pushing it to its highest level since April 2017. It was up 0.2 percent on Thursday.

The dollar has risen more than 1 percent against China’s government-managed currency, the renminbi, in February alone. For the year, it’s up more than 3.5 percent against the euro, 3 percent against the yen and more than 2.5 percent against the British pound.

Those regions have faced a flurry of lackluster economic results.

Official reports this month showed that the British economy flatlined during the fourth quarter. A report last week showed that the Japanese economy shriveled at a 6.3 percent annual clip during the fourth quarter, in part because of a tax increase. And this week, survey data about economic sentiment in Germany tumbled anew, as the country’s manufacturing sector copes with the fallout of the coronavirus outbreak in China, a key customer for its industrial goods and automobiles.

“Currencies are weakening on incoming bad data that leads to inflows into dollar assets,” wrote Ben Emons, global macro strategist at Medley Global Advisors.

While weakening foreign fundamentals have pushed money out of those markets, the relatively high interest rates in the United States have exerted a magnetic pull.

Yields on U.S. Treasury bonds — a benchmark for measuring investment returns — are quite low by domestic standards, but they’re downright generous compared with global rates.

The yield on the 10-year Treasury note was about 1.52 percent on Thursday, trouncing the negative yields of roughly 0.04 percent and 0.44 percent on 10-year government bonds from Japan and Germany. (Negative yields effectively mean that lenders are paying borrowers for the privilege of handing them money.)

The strengthening dollar can be a boon for the American economy: It helps lower the costs of borrowing and makes imports cheaper, bolstering already strong consumer sentiment.

But that dynamic can also have negative consequences. Despite the country’s robust labor market, business investment has been shrinking and manufacturing has struggled since late 2018 — and a strong dollar won’t help those parts of the economy much.

American exports such as aircraft, automobiles and soybeans become less competitive on global markets as the dollar rises in value. That, in turn, could weigh on the industrial manufacturers, from the makers of farm equipment to the factories that churn out piping for oil and gas extraction. A slowdown in foreign economic growth will also weaken overseas demand for American-made goods.

“There is no question that the industrial side of the economy continues to suffer the effects of weak global growth, the strong dollar, tariffs and trade uncertainty,” Mr. Schwartz wrote in a recent client note. “Those headwinds are not expected to vanish anytime soon.”

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Coronavirus likely to have severe but short-lived economic impact: Kemp – National Post

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LONDON — Epidemics normally have a severe but relatively short-lived impact on economic activity, with the impact on manufacturing and consumption measured in weeks or at worst a few months.

Even pandemics such as the Black Death (1348/49), Spanish influenza (1918/19), Asian influenza (1957/58) and Hong Kong influenza (1968/69) that caused large numbers of deaths had a brief impact on the economy.

China’s coronavirus outbreak should conform to this pattern of a severe downturn followed by swift recovery, provided it does not initiate a broader cyclical slowdown in the already-fragile global economy.

Oil traders are anticipating a deep but short-lived drop in consumption, with the impact concentrated in the first three months of the year and gradually fading in the second and third quarters.

BLACK DEATH

Before modern medicine, the Black Death is estimated have killed between a third and a half of the population of England, and as many as 60 million people worldwide, making it the most lethal single epidemic in history.

The Black Death has become the archetype lethal pandemic, spreading from country to country, and community to community, rapidly killing millions, including many otherwise healthy young adults.

Plague returned periodically to England for the next 150 years, with severe outbreaks in 1361 (“pestis secunda”) and 1368 (“pestis tertia”), and smaller national or local outbreaks in most decades until the early 1500s.

England’s population plunged from around 4.5-6.0 million in 1348 to as little as 2.0-2.5 million a century later and did not fully recover for three or four centuries, according to estimates by historians and demographers.

Following the plagues, England’s economy entered a long agricultural and commercial depression towards the end of the 1300s that lasted through the 1400s, which some scholars blame on depopulation.

In the immediate aftermath of the Black Death, however, the economy seems to have bounced back remarkably quickly given the catastrophic death toll, according to the historian John Hatcher.

“The immense loss of life in the plagues inevitably caused disruption and setbacks in production, but in the greater part these appear to have been short-lived” (“Plague, population and the English economy,” Hatcher, 1977).

“One of the most striking features of the thirty and more years following 1348 was the resilience that the agrarian economy displayed in the face of recurrent plague,” Hatcher observed.

For the most part, agricultural rents and revenues as well as consumption of major commodities rapidly returned to pre-plague levels, and only began to decline from the 1380s or 1390s.

SPANISH INFLUENZA

In more recent times, the outbreak of influenza in 1918/19 is estimated to have killed 675,000 people in the United States and 50 million worldwide, making it the second most deadly epidemic after the Black Death.

The influenza epidemic came in three distinct waves, in the summer and autumn of 1918 and again in early 1919 (“Report on the pandemic influenza 1918-19,” UK Ministry of Health, 1920).

But economic impact in the United States, Britain and many other countries, was very short term and dwarfed by the transition from wartime production to a civilian economy as World War One ended.

In the United States, business conditions were chronicled in the monthly bulletins of the Federal Reserve System, which included a survey regional economic conditions in each of the 12 Federal Reserve districts.

The bulletin made no references at all to influenza for the first 10 months of 1918, then references surge to 17 in November and 23 in December, before falling to just 2 in January and largely disappearing thereafter.

Most of the influenza references in the November and December bulletins are to evidence from business surveys conducted by each of the 12 Federal Reserve Banks in October and November (https://tmsnrt.rs/2SIo6Sm).

In November, the Federal Reserve Bank of Boston warned: “The epidemic of influenza which has prevailed during the past month has seriously interfered with business. Production of all kinds has been restricted.”

“Retailers in large centers have had a material falling off in business, while those serving small local trade have to a considerable extent reaped benefits. Conditions are, however, rapidly returning to normal.”

In the Philadelphia District, “retail trade shows a large increase during the month up to the beginning of the influenza epidemic. Since that time, however, the number of customers daily visiting the stores has decreased about one-third and the volume of sales from 30 to 50 percent.”

“Working forces of all business establishments, too, have been affected very much at times, as many as one-third of the employees having been unfit for duty.”

Coal production was hit especially hard, with some collieries being forced to close because so many miners were sick (https://tmsnrt.rs/2HHGrsu).

In the St Louis District, “the influenza epidemic, and the measures taken to combat it, have had a disturbing effect on certain branches of business … Theaters, schools, churches, and other meeting places have been closed entirely, and some of the large stores have been compelled to open later and close earlier than usual.”

“This has especially handicapped retail trade, though other lines have also been affected. Some activities have suffered considerably on account of the depletion of their working forces through contraction of the disease.”

Just a month later, however, most Federal Reserve Banks were already reporting business conditions were returning to normal in the December bulletin.

In the St Louis District, “the influenza epidemic is on the decline … and the bans placed on business to combat it, in most instances, have been lifted. Department stores, theaters, etc, are now operating as usual, and schools, churches, lodges, etc, are again open. This has materially helped the retail trade.”

In the Richmond District, “the subsidence of the prevalent influenza permitted the reopening of churches, schools, and other places of gathering.”

“Manufacturing continues active with the prevailing restriction of supplies and labor. The effects of the influenza are passing and mills are resuming more normal operations.”

LATER PANDEMICS

The precise economic impact of the epidemic of 1918/19 is hard to isolate because it coincided with the end of wartime production and the transition to a post-war civilian economy.

But there are no signs of lasting disruption: a pandemic that killed 50 million people worldwide has left almost no trace in the economic record.

Further influenza pandemics were reported in 1957/58 and 1968/69 but in both cases the number of extra deaths was low and there was no discernible economic impact.

More recently, the outbreak of severe acute respiratory syndrome (SARS) in 2003, caused only a brief interruption in economic activity and oil consumption.

In most cases, the main impact on the economy has come from public health measures, such as quarantines, isolation and business closures, intended to control the spread of disease, rather than from the disease itself.

As a result, policymakers face a difficult trade-off between stringent public health measures to contain the epidemic and the need to resume normal business and social activities as soon as possible.

Over time, policymakers, business owners and employees face increasing pressure to resume near-normal operations, while taking practical steps to reduce if not eliminate transmission risk.

China’s government is trying to encourage a gradual normalization of business activity and transport in the rest of the country outside Hubei, the province at the center of the outbreak.

If the past is any guide, economic activity and oil consumption should return to normal over the next 3-6 months, which is why Brent prices and calendar spreads have been progressively strengthening over the last 10 days.

The main remaining risk is that the short-term economic shock from coronavirus could push the global economy, which was only just recovering from the trade war of 2018/19, into a full-blown cyclical downturn.

Related columns:

– Oil prices bounce on hope for short coronavirus downturn (Reuters, Feb. 17)

– Falling air freight points to renewed global economic slowdown (Reuters, Feb. 13)

– Coronavirus and the impact on oil consumption (Reuters, Feb. 5) (Editing by David Evans)

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