Pat McCann, who’s seen his share of hard times as a hotel industry veteran of five decades, has learned all too quickly how economic contagion from Covid-19 is spreading more quickly than the virus itself.

The chief executive of Dalata Hotel Group reported on February 25th – as the company reported increases in full-year profits and shareholder dividends – that he had seen an “almost zero” effect from the coronavirus on business.

“We are monitoring it very closely,” he told analysts on a call. “But to date, there’s been no material impact.”

Less than two weeks later, everything had changed. The State’s largest hotel operator was forced on Monday to alert the stock market that it had “observed a significant reduction in bookings and a significant increase in cancellations” as the virus ripped through Europe, particularly northern Italy, currently the most stricken area outside Asia, and from there to the UK and Ireland.

While shares in the company slumped almost 10 per cent on the day, Dalata was far from alone.

Stocks globally plunged the most since the height of the 2008 financial crisis on Monday as investors baulked at the rapid spread of the virus and oil prices, already under pressure amid fears of a global slowdown, spiralled more than 30 per cent lower as Russia and Saudi Arabia launched a price war amid a row over output.

Initially there was some complacency among fund managers that were stuck in the ‘buy on the dip’ mindset whenever equity markets dropped on coronavirus headlines

Western equity markets had continued to climb on a daily basis to record highs through most of February, despite much of China being in lockdown, as international investors took a view that the virus was an Asian health issue, with the broader economic impact restricted to short-term disruptions to supply chains, manufacturing and local consumer demand in the world’s most populous nation.

However, European and US stocks started to sell off in the final week of the month as Italy saw a spike in cases around the country’s business capital of Milan and authorities sealed off the hardest hit towns.

“I think initially there was some complacency among fund managers that were stuck in the ‘buy on the dip’ mindset whenever equity markets dropped on coronavirus headlines,” said Eugene Kiernan, an independent investment consultant in Dublin.

“But Italy was a gamechanger. The problem for markets is we will see massive cuts to profit and growth forecasts – we’re not talking in terms of decimal points.”

Pandemic classification

Financial markets have continued to be whipped this week as the number of cases climbs at pace and investors fret that the scramble by governments and central banks will fail to staunch Covid-19’s spread and a global recession. The World Health Organisation declared on Wednesday that the worldwide outbreak of the virus could now be classified as a pandemic.

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Confirmed cases of infection are approaching 125,000, with the death toll at more than 4,600.

The Iseq stocks index in Dublin, pan-European Stoxx 600 and S&P 500, which had been on the longest bull run in history, have all now slumped into bear territory. A bear market is when overwhelming pessimism drives a market down more than 20 per cent in a short period.

We do not know how long this crisis will last, but the impact on this sector alone is likely to be enough to push the euro area into recession

“The evidence is now insurmountable as to the scale of the global shock this is, and will be, for growth and activity, over and above the humanitarian tragedy,” Andrew Canobi, a director of fixed income in US investment giant Franklin Templeton’s Australian business, said in a note to clients on Thursday. “A global recession is quite possible.”

With Ireland’s tourism and hospitality industry already reeling from the cancellation of St Patrick’s Day parades and the impact of social distancing to contain the disease, the Restaurant Association of Ireland warned on Wednesday that up to 30,000 jobs could be lost in the wider sector over the next three months.



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