Edison Research: Impact of coronavirus on financial services
- Fear, not the coronavirus. might be the UK economy’s biggest enemy as supply chains recover more quickly than expected
- A spending drought makes extraordinary spring sales likely, with some retailers going to the wall
- More will be known next week and there are reasons to be cheerful
We’re in a state of uncertainty right now. And unless infection rates start to fall quickly, we can’t exclude further declines in stock markets.
Our experts are predicting the potential for extraordinary spring sales as retailers, travel agents and even restauranteurs discount heavily to avoid going bust. Not because they cannot source stock or deliver services – but because their customersare too paralysed by fear to spend.
While much has been made of the potential disruption to manufacturing and transport, triggering collapses which leave companies without components and shops with empty shelves and racks, initial evidence suggests production disruption can be limited to a few short weeks within each affected country.
Two US-listed fuel-cell companies, Plug Power and Ballard, reported last week and neither of them were badly hit, despite relying on Chinese suppliers. They reported some initial disruption but employees are going back to work and production is ramping up again.
Plug Power is headquartered in New York. During its Q419 results call on Thursday, the CEO noted “We saw a two week to three week disruption in China, but you know at the moment all of our Chinese suppliers are operating and we see many of them are working over-time. We’re also tracking our other suppliers that have dependencies in China and their reports are similar to our experience. We don’t see the issues having any impact on the first quarter and we don’t expect any revenue impact for the year. We’ve seen no changes with our customers.”
Ballard held its Q419 results call shortly afterwards and the message from its CEO was very similar “…at this time we’re not expecting a material impact to our 2020 financial results.”
Whilst gold has increased as investors rush to it as a haven from stocks, many raw materials and commodity prices remain relatively unscathed – with markets yet to react to a massive drop in demand or sudden increase that cannot be met by supply.
So the real economic impact of the virus may be akin to terrorism and the fear it spreads. In times of uncertainty the mortgage will be paid for – along with food and power – but more discretionary spend is currently at risk.
Our experts believe those on zero hour or other temporary contracts will already be reducing spend. Restaurants, retailers, entertainment venues and schools are already openly discussing cutting hours or closing entirely.
And given this risk, who really needs that new shirt, dress, night out or weekend away? Companies which have a high level of seasonality in their offering, including clothing retailers and travel companies, are likely to be worst affected.
The likely result is a deep round of high street and online sales, with businesses carrying the highest levels of debt likely to discount most deeply. This could put the most vulnerable at risk of not surviving the fear of coronavirus.
However, it is also possible that, as the crisis drags on, new impacts may reveal themselves.
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