[Economics] A tsunami? The global economy gauges the impact of Omicron

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The magnitude of the economic damage from the new variant is uncertain, but growth could suffer from both sanitary restrictions and the havoc caused by the variant.

Almost two years after the tsunami caused in the international economy by the appearance of the new coronavirus, experts from around the world are trying to gauge the impact of the increase in infections by the Omicron variant after the shaky recovery in 2021.

Is global growth threatened?
The magnitude of the economic damage of the new variant is uncertain, but growth could suffer both from sanitary restrictions and from the damage caused by the contagious Ómicron in the workforce of companies.

The director of the International Monetary Fund, Kristalina Georgieva, warned in early December of a downward revision of world growth forecasts, currently at 5.9% in 2021 and 4.9% in 2022. The change could be announced at the end of January.

In the United States, "Ómicron is already causing damage," noted the chief economist of the rating agency Moody's, Mark Zandi, who estimates a growth of 2.2% in the first quarter in that country, against 5.2% previously. of the Omicron impact.

These shocks can dissipate from the second quarter, he says.

 

In the eurozone, Andrew Kenningham, chief economist for Europe at the Capital Economics cabinet, estimates that restrictions such as the lockdowns applied in the Netherlands or Austria will cause a slowdown in the first quarter, followed by a rebound if the epidemic peak is reached in January.

"Each wave causes less damage to the health care system and the economy than the preceding one," summarizes Zandi.

The uncertainty is greater in emerging countries, with less vaccination coverage, and in China, which continues to apply draconian restrictions in its "zero covid" strategy.

What sectors are most affected?
Thousands of flights canceled during the holidays, diverted or suspended cruises, sinking hotel reservations ... Ómicron has hampered the long-awaited recovery of the travel sector, especially hit by the pandemic.

The entertainment industry also fears that the explosion of cases will put off casino, theater or movie theater patrons.

 

But on world stock markets, these sectors have been going from strength to strength for weeks. "The market seems to be projected in the post-Ómicron", explains Alexandre Baradez, analyst at the investment company IG France.

Since December 20, the share of the cruise company Carnival has risen by almost 20%, that of Air France by 15% and that of the manufacturer of engines and construction materials Caterpillar, almost 25%.

These values, which strongly depend on the situation, illustrate the hope of an imminent economic normalization.

Will inflation get worse?

 

Before Omicron, inflation in the United States and the eurozone was at its highest level in decades. And this phenomenon could be accelerated.

"People who stay home because of the variant are more likely to spend their money on consumer goods, rather than on services like restaurants and face-to-face entertainment," says Jack Kleinhenz, chief economist at the US merchants federation NRF.

Global supply chains are already overloaded, causing shortages of materials and raw materials. An increase in demand could raise prices further.

It is the scenario feared by the US Federal Reserve, which plans to advance its calendar to raise rates, according to the minutes of its last meeting.

In other economies, such as Brazil or Nigeria, families see their purchasing power decline due to double-digit inflation, and the British economy is on the verge of contraction, according to the country's chambers of commerce.

What will happen to the aid?

 

Massive business aid programs in the spring of 2020, which added $ 226 trillion to global debt the previous year according to the IMF, seem like a thing of the past.

"The use of programs such as partial unemployment made sense at a time when uncertainty was total and the entire industry was paralyzed," says Niclas Poitiers, a researcher at the Bruegel Institute.

But the planet has learned to live with Covid-19 and "now we are talking about launching more structural aid programs such as Build Back Better (which provide for social and environmental reforms in the United States) or the Next Generation," the plan of Ecological and digital transition of the European Union, he adds.

But there is still more focused aid for the worst hit sectors, such as the French or British programs for tourism, hotels and restaurants.

 

Link: https://www.eleconomista.com.mx/economia/Un-tsunami-La-economia-mundial-calibra-el-impacto-de-Omicron-20220107-0029.html