Omicron's economic impact: ominous or overblown?
Heightened uncertainty caused by the new Omicron variant is undermining consumer and business confidence around the world, due to the potential for another round of lockdowns and border restrictions.
Earlier this year our panel of analysts severely downgraded Asia’s economic outlook for 2021 due to the impact of the Delta variant, which could foreshadow what’s in store for the Euro area and developed economies more broadly. Governments across Europe have already introduced precautionary restrictions such as travel bans, and they are likely debating whether tougher measures are necessary ahead of the busy holiday season, which could derail the economic recovery at the tail end of the year. Pharmaceutical companies responsible for developing vaccines have stated their concerns over whether vaccinated individuals will be safe from the new variant. That said, the current understanding of the new strain is too limited to make strong conclusions on its effect on the population, and consequently its potential impact on the global economic recovery. Its medium-term effect will depend on whether it is more transmissible, whether existing vaccines are less effective against it and whether it causes more serious illness.
A more transmissible, vaccine-resistant and dangerous variant could weigh heavily on the global economic recovery going forward. In particular, tougher restrictions to curtail its spread would hamper mobility and hurt still-frail labor markets and household spending. Meanwhile, the impact on inflation would be more ambiguous. On the one hand, lockdowns would cause further turmoil for supply chains and lead to shortages of goods, but on the other hand, depressed consumer sentiment and limited mobility could weigh heavily on demand, which would offset inflationary pressures. That said, both firms and consumers are better adapted to restrictions almost two years into the pandemic, while some governments may be reluctant to reimpose harsh lockdowns, which would dilute their economic impact. Looking at a more optimistic scenario, current vaccines will remain effective against Omicron, limiting its potential harm. Moreover, even in the event that existing vaccines are less effective, vaccine producers have claimed that they will be able to alter their formulas to better combat the variant within a relatively short timeframe, while new antiviral drugs—being considered for approval for use in the U.S. this month—will likely offer further protection.
Insights from Our Analyst Network
Analysts at Swedbank caution against overreaction to Omicron’s appearance:
“At the end of the day, it seems like markets overreacted on Friday, also owing to thin market liquidity. It seems likely that Omicron will spread quickly and overtake Delta as the dominant strain. In the very short term, this could make the current wave in most of Europe worse, but with effective vaccines and new treatments soon to be available, we do not believe it will disrupt the broad economic recovery.”
Meanwhile, analysts at ANZ Bank suggest what might happen in a worst-case scenario:
“Let’s take aside the worst-case scenario, where Omicron manages to avoid vaccine coverage and generates a spike in hospitalisations and a fresh round of demand-sapping restrictions across the globe. There is still a meaningful risk that, even with lower levels of severity, activity and growth are negatively affected.”
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: December 7, 2021
Tagscentralbanks Japan Turkey Colombia Political Risk Iran Africa Spain Healthcare digitalcurrencies United Kingdom Precious Metals Commodities TPP Central America Russia Economic Growth (GDP) Commodities oil prices Eurozone precious metals Inflation Venezuela Euro Lagarde India Greece Consensus Forecast Ukraine Exports Economic Debt Sub-Saharan Africa Interest rate Canadian Economy Forex election Investment Canada Palladium Bitcoin Resource Curse public debt Vietnam Asia United States interview Sterlin Costa Rica; GDP; Budget European Union Major Economies South Africa WorldCup MENA Cryptocurrency OPEC chile Germany G7 Latin America USD Company News Housing Market CIS Countries Dolar TPS economic growth Argentina Copper Emerging Markets scotiabank Asian Financial Crisis Infographic GDP Tunisia Base Metals Australia Energy Commodities Base Metals Commodities China Brexit Trade Unemployment rate Economic Outlook Fed Portugal ECB Economists Exchange Rate Eastern Europe Nordic Economies Cannabis France Euro Area USA UK Government Bond Asean Mexico Israel Qatar Economic Crisis Banking Sector Nigeria Budget deficit Gold Oil Brazil Italy Draghi TPI Agricultural Commodities IMF Exchange Rates
In our latest insight piece, we interview Mihály András Kovács, senior advisor at OTP Bank, and Hrvoje Dolenec, chi… https://t.co/Gzrcid43Nk
2 hours ago
In our latest post, economist Adrià Solanes Roca discusses the upcoming presidential elections in Cyprus and their… https://t.co/T4Ikur25Qi
10 hours ago
In our latest post, economist Magdalena Preshlenova discusses the benefits and challenges for the Croatian economy… https://t.co/I3ILTmu4v6
1 day ago
In our latest webinar, our economists examine the outlook for Latin America's economy this year. Spoiler alert: Eco… https://t.co/wCXk7AY32n
2 days ago
The U.S. energy sector has gone from strength to strength in recent years. In our latest insight piece, we look at… https://t.co/6HiQ9SGEDR
3 days ago