Also: California yanks Cruise cars, Microsoft's AI pays off, Mitsubishi exits China
Good morning, Peter Vanham here in Geneva.
The Israel-Hamas war has deeply divided societies around the world, including many companies and institutions. But as the Israeli offensive in Gaza intensifies, companies will have to shift gears from talking about the conflict and its impact on employees to dealing with its economic ramifications.
Those could be so severe that they could plunge the world back into a recession, cause oil prices to surge to $150, and depress stock prices by some 20%, EY-Parthenon’s chief economist Gregory Daco told me. Even companies that have no business in the Middle East would then be caught in its economic fallout.
“If your market is 90% U.S.-based, in the Midwest, why should you care about the [conflict]? Well, you will have to care because it will have consequences that will affect your business,” Daco said. “Depending on how diffuse the situation becomes, the consequences could go from very marginal to significant.”
The hypothetical situation outlined above, which Daco dubbed the “uncontained” scenario, includes a widening of the front to Lebanon and Syria, direct involvement of the U.S. and Iran, and wider social unrest in the Middle East. That outcome isn’t more likely than a more contained scenario, which would limit the war to a ground offensive in Gaza and have almost no long-term global economic consequences. Still, CEOs better take all possibilities into account as they plan ahead.
The prospect of long-term economic consequences also points to a definitive end to the days in which multinational companies could simply forecast economic growth, trade, and manufacturing costs for their global markets. They must also factor in the constant threat of disruptive forces like political and social turmoil and war.
“Reshoring” and “nearshoring” can provide relief from possible trade disruptions resulting from the Middle East conflict in the Strait of Hormuz or the Suez Canal, but no one can run away from rising oil prices, inflation, a recession, or a drop in the stock market. “Resilience” and “geostrategy” are my nominees for the buzzwords of 2023.
More news below.
Peter Vanham
peter.vanham@fortune.com
@petervanham
|
|
|
Cruise loses a safe harbor
California’s Department of Motor Vehicles abruptly ordered Cruise–the autonomous driving unit of General Motors–to take its robotaxis off of state roads months after approving the self-driving cars. The agency cited an “unreasonable risk to public safety,” including one incident in which an autonomous vehicle struck a pedestrian. GM lost $723 million on Cruise last quarter. Reuters
Microsoft earnings
Microsoft reported better-than-expected results on both its bottom- and top-lines as the tech company’s investment in AI begins to pay off. The company generated $56.5 billion in revenue last quarter, a 13% year-on-year jump. Microsoft hopes AI will be its next big source of growth; it invested $10 billion in ChatGPT developer OpenAI at the beginning of the year. Fortune
Giving up on China
Japanese car company Mitsubishi announced its withdrawal from China. The company’s local partner, the Guangzhou Automobile Group, will take over its operations. The company expects to lose $162 million from its China retreat. Foreign car manufacturers from Japan and Germany are now facing stiff competition from China's domestic brands, particularly in the EV space. Nikkei Asia
|
|
|
Holidaying Like It’s 2019 Holiday spending is expected to surpass pre-pandemic levels for the first time, with consumers planning to spend an average of $1,652, up 14% from 2022. What does this mean for consumers and retailers? Read here
|
|
|
Network with leaders in San Francisco on Dec. 11-12 |
Limited space remains for Brainstorm AI 2023 At our third annual conference, we'll reveal the sector's opportunities and pressing challenges. Join already confirmed leaders from Google, Walmart, Best Buy, Amgen, Capital One, Salesforce AI, Accenture, and more. Apply here to claim your spot |
|
|
Thanks for reading. If you liked this email, pay it forward. Share it with someone you know. Did someone share this with you? Sign up here. For previous editions, click here.
To view all of Fortune's newsletters on the latest in business, go here.
|
|
|
|
 |
|
