The economic problems that China is going through after the covid-19 pandemic are adversely affecting large American companies. They therefore worsen the outlook for the rest of this year, and some of them are worried about whether the expected recovery after the pandemic will come at all. The American economic newspaper The Wall Street Journal (WSJ) wrote about it. Due to China’s problems and a stronger US dollar, oil prices are even falling.
Companies that operate in the manufacturing sector and in the construction industry or that focus on export are facing problems. They report lower sales and in some cases warn of more problems to come. China’s gross domestic product (GDP) growth has almost ground to a halt, and the latest statistics suggest a bleak outlook.
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Server Business Insider he compared the current economic situation in China with the economic collapse of Japan in the 1990s, from which Japan is still recovering in some sectors. China is said to be at risk of “japonification”, but the situation is not so bad yet. Strategists at financial firm JPMorgan said China must stabilize its property market and address its aging population if it is to avoid Japan’s fate.
The slowdown in China’s economic growth is reflected in the financial results of many companies, from chemists DuPont and Dow to heavy construction equipment supplier Caterpillar. Some firms expressed disappointment over the effectiveness of Beijing’s economic stimulus measures and downgraded China’s sales outlook for this year.
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“Orders in China were down 20 percent in the first quarter, 40 percent in the second quarter, but they’re down 50 percent for June,” said Danaher CEO Rainer Blair, describing the drop in sales at his bioprocessing equipment business. “Frankly, we don’t expect it to improve in the second half,” he added.
Blair sees a drop in foreign investment and excess production capacity after the pandemic as the main cause of weak demand. Danaher’s total sales in China fell 10 percent in the second quarter. Last year, the company earned a total of 31.5 billion dollars (almost 692 billion CZK), and China contributed 13 percent of this result.
Some executives have warned of a global chain reaction as customers in other geographies also feel the negative effects of weaker demand in China. The result is a drop in orders and lower revenue in other parts of the world.
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But the problems are not the same everywhere. Firms in industries that recover faster, such as domestic tourism, perform better. For example, hotel chain Marriott is seeing an increase in demand for accommodation in China amid a recovery in domestic tourism, adding that it now generates more revenue per room than it did in 2019, the pre-pandemic period.
American coffee chain Starbucks said in early August that sales in China increased by 51 percent in the last quarter compared to the previous year. A quarter earlier, the year-on-year increase was three percent. Similarly, electronics maker Apple reported record sales in the region, which includes mainland China, Hong Kong and Taiwan.
Oil prices
Brent North Sea crude oil fell by around one percent on Monday around 16:00 CEST, falling below 86 dollars per barrel. U.S. West Texas Intermediate (WTI) crude also lost about a percent and was near $82 a barrel.
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Brent and WTI prices increased by around half a percent over the entire past week. Thus, they showed the seventh consecutive weekly increase. Oil prices have long been pushed up by production cuts by the OPEC+ group, which includes the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia.
Concerns about demand in China, the world’s largest oil importer, contributed to the drop in prices. China’s economic growth was undermined last year by strict measures against the spread of the coronavirus, and this year’s economic recovery in the country has fallen short of expectations. China is the second largest economy in the world after the United States.
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The U.S. dollar climbed to a more than one-month high against a basket of currencies on Monday as investors moved money into riskier assets on concerns about China’s economic development. A stronger dollar makes oil and other commodities more expensive from the perspective of holders of other currencies, which usually reduces demand.
2023-08-14 19:32:00
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