Corona’s shock bill: huge losses for giants and the collapse of the largest economies

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Billions of losses in the oil and aviation companies, automobiles and finally a sharp decline in the gross domestic product of the world’s largest economies at the forefront of America .. This is a shocking outcome announced by governments and major companies Thursday, which reveals the heavy bill of the epidemic on the global economy, and with it the potential recovery has been called into question.

The figures came as shocking, as Germany, Europe’s largest economy, Thursday revealed a historical 10.1% drop in its gross domestic product in the second quarter, while Mexico recorded a 17.3% decline, the highest in its history.

Meanwhile, US GDP during the same period fell nearly 32.9%.

It is the second consecutive three-month period in which the world’s largest economy is contracting, which means it is entering a recession, according to preliminary estimates published by the US Department of Commerce Thursday.

But it is worth careful in comparison, as Americans record development at an annual rate that compares GDP to the previous quarter of the same year, and displays development throughout the year on the basis of this rate, and then tends to amplify differences. As for the second quarter of 2019, the decrease was 9.5%.

“GDP is the rearview mirror, it shows us the bottom of the curve, the black hole of the crisis,” Ludovic Sopran, chief economist at Allianz, told AFP.

In addition to the severe recession in the United States, requests for new weekly unemployment benefits rose to 1.43 million last week across the country.

In a series of results published Thursday, the major economies of the “old world” emerged in a shaky image, while Apple, Facebook, Amazon and Alphabet, the giants of American technology, are expected to publish their quarterly reports within hours.

The oil companies have reduced the value of their assets with the continuous collapse of crude oil prices and the historical decline in demand, with huge losses in the second quarter of $ 8.4 billion for Total and 18. 18 billion for Shell, the Dutch-Dutch company.

Unprecedented

The aviation industry is also paying a heavy price for the crisis, while air traffic is not expected to return to normal before 2023.

European aircraft manufacturer Airbus announced a net loss of 1.9 billion euros in the first half of the year.

The European giant used about 12.4 billion euros of its cash reserves during the first six months of the year and reduced its production rates by 40%.

Its major competitor, Boeing, plans to cut production cuts, lay off more employees and halt production of the legendary Jumbo Jet 747 in 2022.

In the second quarter, it lost a total of $ 2.4 billion.

The auto industry was also disrupted with the closing of factories and car dealerships during the isolation period.

The biggest losses in cars

The French company Renault in the first half of the year recorded the largest net loss in its history, amounting to 7.3 billion euros, affected by its Japanese partner Nissan and the decline in shares.

At the end of May, it announced the removal of 15,000 jobs.

The German giant Volkswagen announced a pre-tax loss of 1.4 billion euros in the first half.

In the field of rail transportation, the French rail company announced a loss of 2.4 billion euros, while the German company Deutsche Bahn is experiencing the worst crisis in its history, with losses amounting to 3.7 billion euros.

Renault CEO Luca de Meo eased the burden of the crisis by saying that “the situation is unprecedented, but it will not last,” expecting the market to recover, but in what way? Return to normal is expected to be slow, and the automotive sector, such as air transport, is subject to increasing environmental pressure.

In Germany, economists expect a rapid recovery after a glut.

“The German economy has already recovered,” says Karsten Bergsky, economist at ING Bank.

Variation in industry

In the industrial sector, large companies also revealed a dismal outcome, with steelmaker Arcelumital reporting a net loss of $ 559 million in the second quarter.

The food industry showed slightly better resistance.

The Swiss giant, Nestlé, posted a half-year net profit of 18.3%, under the influence of sales.

The few good news came from the technology and pharmaceutical sectors.

South Korean Samsung, the world leader in mobile phones and memory cards, recorded an increase in its quarterly net profit by 7.3%.

There are companies that registered improvement such as the American “UPS” for shipping, benefiting from the increase in the number of packages required, or Proctel & Gamble, benefiting from the increasing demand for cleaning products.

Whereas, the French Drug Laboratory Ibsen achieved half-year net profit, up slightly by 1%, for example.

“This crisis is totally Darwinism,” Allianz’s chief economist warned. “It affects countries and sectors very differently.”

After the shock of the first stoppage of activity, he continued, “the sectors that are already weak in terms of profitability have to adapt to a slow change in the business environment.”

He said that “some companies will not stand up: either they change their business model very quickly, and this requires investment, or they will disappear slowly but surely, because their model will no longer be appropriate to the change in consumption” and the priorities of governments.

On the contrary, he added, “this crisis revealed real drivers of growth represented in the knowledge economy and the digital economy” and selling via the Internet, but “we are talking about a few companies.”

According to him, a “green recovery” like the one that is being called in Europe should not depend on state intervention alone, stressing: “We cannot create a fake economy for a very long time.”
Major bleed losses

In the oil sector, all major energy companies have been hit hard by the effects of Covid-19 and public isolation measures to prevent its spread, undermining demand and weakening energy price expectations.

Italy’s Eni trimmed its dividend and announced additional spending cuts after it switched to a revised net loss in what it described as the worst-ever season for the oil and gas sector.

Eni reported an adjusted net loss of 714 million euros (839 million dollars) in the second quarter, compared to a profit of 562 million dollars a year earlier, after it had already indicated a write-off of assets during the period.

Reducing expenses

The company, which cut production forecasts for the year, said it would cut costs and investments to a range of 8 billion euros over the next four years.

The company also introduced a new distribution policy linked to the price of Brent, offering a minimum of 0.36 euros.

Based on current price perceptions, this indicates distributions of 0.55 euros this year, while in February, the company pledged to distribute 0.89 euros in profits.

Exxon is trying to save the dividends

Informed sources say that Exxon Mobil, the largest American oil company, is preparing for deep cuts in spending and jobs, as the company is doing its best to maintain dividends of 8%, while billions of dollars are on the horizon.

It is unclear how the company will make these drastic cuts.

The largest American oil company cut its budget this year by 30% in April, but its CEO, Darren Woods, plans to advance the company by reviving demand and selling more assets that have not yet paid off.

Exxon is expected, on Friday, to announce a loss of $ 2.63 billion in the second quarter of the year, according to Refinitiv Icon, due to a sharp drop in prices and a drop in production.

It will be the first time that the company has suffered losses for two consecutive quarters in at least 36 years.

Exxon has contributed a 35% drop since the start of the year to the Corona Virus pandemic, which is ravaging demand for fuel.

The sources said that reducing the cost is necessary to maintain annual distributions of about $ 15 billion to the company’s shareholders in light of the growing losses.

Analysts say that Exxon will achieve sufficient liquidity from production operations to cover the distributions this year.

The company borrowed $ 18 billion earlier in the year to boost liquidity.

CEO Woods says that demand for oil, natural gas and petrochemicals will recover after an unprecedented collapse due to a drop in global consumption by a third and the drop in US oil prices to zero in April.

Competitors such as BP, Royal Dutch Shell and Total have reduced the value of their oil and gas assets by up to $ 45 billion.

Exxon spokesman Casey Norton said there were no plans to lay off workers due to the pandemic, nor were targets to reduce the workforce by a certain percentage through employee performance reviews this year.

“We constantly monitor the market conditions, and our deep portfolio of flexibility allows us to adjust our plans,” he added.





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