Analysts say Omicron’s economic impact will be small

Economists generally expect the world economy to be able to weather any new wave of coronavirus infections caused by the Omicron variant with relative ease, even if the latest version of the virus causes uncertain economic outlook.

A key reason for their relatively optimistic initial assessment was the growing ability of economies to adapt to past Covid-19 restrictions, coupled with the implementation of vaccine programs. ask for.

Any new wave of the virus is unlikely to curb a rise in inflation, economists say, although it will cast doubt on central bankers the wisdom of tightening monetary policy early.

Lockdowns have become less severe with each wave of coronavirus

Among the many analysts who released notes and forecasts Monday morning – be they from investment banks or consultants – all highlighted the uncertainty created by the potential for vaccine avoidance. present of the Omicron variant, which causes more severe disease and spreads faster than the Delta variant.

At the same time, however, few think it is necessary to disrupt their current economic projections.

Paul Donovan, chief economist at UBS Global Wealth Management, said that travel and tourism could be hit hard in some places, but overall this is a fairly small part of overall economic activity. The Omicron variant is “not likely to change the broader economic story at this stage,” he added.

“From wave to wave, the economic damage has subsided,” said Holger Schmieding, chief economist at Berenberg Bank. He points to a contrast between the first and second European Covid-19 waves: while the first wave knocked out 15% of eurozone economic activity in the second quarter of 2020, the adaptation combined with living with the virus only resulted in a reduction of 0.7%. in gross domestic product in a sharper second wave in early 2021.

Furthermore, even if the Omicron variant is more resistant to current vaccines, the prevailing view is that vaccination against it will help reduce the economic impact.

Daniele Antonucci, chief economist at Quintet Private Bank, said: “The developed world can now count on high vaccination rates, which have increased capacity to develop and manufacture vaccines, while allowing find they can adapt a more flexible and adaptive working model overall. ”

Most economists believe that any slowdown in economic activity is unlikely to curb the recent rise in inflation, especially for those commodities where demand has outstripped supply. Global has been broken due to disruption.

Neil Shearing, chief economist at Capital Economics, said: “A virus-related increase in commodity spending, or port closures, will exacerbate existing supply flows and add pressure on commodity inflation”.

“It’s not clear that it [the Omicron variant] Jordan Rochester, a forex strategist at Nomura in London, said.

While accepting that there is great uncertainty, Goldman Sachs economists have come up with four possible scenarios for any upcoming Omicron wave, including one that is a false alarm and a false alarm. The new variant proves no more contagious than Delta.

Its main adverse scenario suggests there will be only a small economic impact from the virus in 2022, because the impact of each subsequent lockdown in the past has been weaker. These restrictions will significantly reduce global growth in the first quarter, until a new vaccine emerges and delivers a strong recovery.

For the full year, Daan Struyven, senior global economist at Goldman Sachs, said global growth will slow from 4.6% in 2022 to 4.2%. However, there will be a corresponding increase in growth in 2023 as the recovery holds up again.

Goldman Sachs' central forecast is an Omicron wave that will hit economic activity in early 2022 before the recovery holds up again.

In its worst-case scenario, disease severity and immunity against hospitalization were substantially inferior to that of the Delta variant. However, Struyven added, there is also a positive scenario in which the severity of the infection is lower and the global economy can “normalise”.

Uncertainty could encourage central banks, particularly at the Federal Reserve and the Bank of England, to move on and wait a little longer before deciding whether to tighten monetary policy. bad or not, by reducing the purchase of US assets or delaying it. interest rates rise in the UK.

In a note on Friday, Citi’s European economists wrote that fresh uncertainty would be “a major warning” for central banks and that “the path to recovery may not be straightforward.” as simple as first thought.

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