Jan 28, 2020
Coronavirus outbreak in China could impact world economy, luxury industry in particular
Jan 28, 2020
Drastic restrictions on travel, tourism at a standstill, consumption under pressure and disruptions in industrial activity: the coronavirus epidemic is threatening to exacerbate the slowdown of an already fragile Chinese economy, as the spectre of the SARS outbreak in 2002-03 looms. Beijing is desperate to contain the spread of the virus, which has reportedly infected over 4,500 people to date, and has adopted unprecedented lock-down measures which risk paralysing the economy.
If consumption expenditure in China, notably in travel and leisure, was to drop by 10%, the country’s GDP growth could be reduced by approximately 1.2 percentage points, according to rating agency Standard & Poor's. “Consumers will probably avoid public areas” and “sectors linked to household expenditure are expected to be the worst hit,” stated the agency. Enough to aggravate the loss of momentum in China’s economy: last year, growth stood at 6.1%, the weakest in nearly 30 years, and Beijing is relying on consumption expenditure, which accounted for 3.5 percentage points of the country’s growth, to offset this.
“At the worst time [of the SARS epidemics], in May 2003, passenger traffic fell by 50% on an annual basis, and retail sales growth was slashed in half in a few months,” said Julian Evans-Pritchard of Capital Economics. Since then, the services sector has greatly strengthened, and now accounts for over half of China’s GDP. However, “the rise of e-tail and of the food delivery business might mitigate the shock,” said Evans-Pritchard.
Share prices of luxury groups take a hit
Financial analysts are increasingly concerned. “The world’s stock markets were under pressure at the start of this week, as concerns about the spread of the coronavirus epidemic in China increased,” said Neil Wilson, an analyst at Markets.com.
Share prices of the leading luxury groups, all very well established with Chinese consumers, have been especially affected. In Paris, the share price of LVMH, the world's number one luxury group, fell by 3.54% to €401.55, Hermès fell by 4.61% to €678.20, and L'Oréal by 4.25% to €259. In London, Burberry’s share price lost 4.39%, down to 2,007p.
Chinese New Year celebrations were expected to be a favourable period for consumption expenditure, but the celebrations’ cancellations across the whole country will hit luxury goods sales. Among the measures taken by the Chinese government, the city of Wuhan, epicentre of the epidemic, has been effectively cut off from the rest of the world, and the same goes for the central province of Hubei. In an effort to further restrict travel during the Chinese New Year holiday, on Monday the government halted all package tours within China and to foreign countries, a heavy blow for tourism, a major contributor to the Chinese economy with an 11% share of GDP in 2018, according to official figures.
The Wall Street share price of Trip.com, the giant Chinese online travel operator, which is considering a Hong Kong stock exchange flotation, fell by 18% in the course of four sessions. On Monday, Trip.com announced it would “guarantee free cancellations.” The shock waves will likely be felt elsewhere in Asia, from Japan to Thailand, where expenditure by Chinese tourists is a crucial driver of economic growth.
Impact on tourism
And of course in Europe too. For example in France, where, according to Atout France, the French national tourist promotion agency, 2.2 million Chinese tourists visited in 2018, a major influx of high-spending customers for luxury labels.
While Chinese tourists have accounted for approximately 2.5% of annual tourist visits in France in recent years, “their impact is much ‘heavier’ in economic terms: they spend up to €4 billion, equivalent to 7% of total tourism revenue [for the country],” said Jean-Pierre Mas, president of Entreprises du Voyage, the French travel industry association, talking to the AFP agency. And the Chinese New Year festivities, from January 25 to February 8, as well as the two following weeks, are crucial for retailers in terms of this expenditure.
The editorial team with AFP
Copyright © 2022 FashionNetwork.com All rights reserved.