BofA: Omicron shock will last a total of two months – Then the pandemic will end and it will become an endemic disease

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Her Eleftherias Kourtali

With Omicron spreading rapidly, Bank of America is taking a broad, test look at its potential impact on the global economy. The three most important conclusions are:

1. A sharp up-down trend in cases is expected in most countries. According to BofA’s baseline scenario, the shock will last for about two months in each area.

2. Countries that have not seen significant case counts are not at risk. Given how contagious Omicron is, a rolling global shock is expected.

3. Due to the huge number of mainly mild cases, it is expected that the main impact will be the quarantine effect on the labor supply.

As BofA points out, in the short term, Omicron poses negative risks to the outlook for the economy. Even if there are no lockdowns, we should expect short but severe financial turmoil in most parts of the world. In the long run, however, there are many reasons for optimism. The variant is highly contagious, but there is growing evidence that it is much less dangerous than the previous ones. In South Africa, for example, the mortality rate has dropped from 2-6% before Omicron to about 0.5% right now.

After the Omicron wave subsided, there is a possibility that Covid is “endemic” and not “pandemic”. That is, the virus will continue to circulate in the population but there will be high levels of immunity and the vast majority of cases will be mild. Thus many aspects of life and economic activity will be normalized. There will still be the risk of new variants, but the hope is that they will not be able to compete with Omicron because it is already so contagious and resistant to vaccines.

If this scenario materializes, BofA sees significant upward developments in the medium-term economic outlook for the economy. The biggest beneficiaries would be the service sectors affected by the pandemic – e.g. airlines and accommodation. “It’s always darker before dawn,” he said.

How long and sharp will the shock be?

Early indications are that the acute phase of the Omicron wave will last about half of the Delta wave. The best data we have comes from South Africa. During the Delta Wave in South Africa, it took 106 days for the cases to increase from 2,000 to 20,000 and then decrease to 2,000. In the case of Omicron, this. Return trip will take approximately 60 days.

However, this sharp rise-fall pattern is unlikely to be repeated globally or even in larger economies with multiple population centers. As we have seen with Delta, the increase in cases tended to rotate gradually from one center to another, extending the period of high case numbers. Thus, BofA sees a series of “rolling peaks” in population centers. Given the low level of testing in South Africa, BofA does not use its example to measure the peak load of cases.

The UK can be the leading indicator of what to expect in many other developed countries. Omicron dominated steadily and by mid-December accounted for about 9 out of 10 cases. Cases in the UK are already almost four times higher than the peak of the Delta wave, although the Delta has spread over a longer period of time. In addition, as in other countries, a high rate of infections is not reported either because many do not get tested, or because the home kit is mainly used and not a test from a health care center.

As BοfA points out, it seems that the United Kingdom is nearing its peak. Cases in London, the epicenter of the epidemic, peaked on December 20. At this stage, the authorities see another “hit” higher as the holiday effects enter the average of seven days, but then will gradually weaken in January. In BofA’s baseline scenario, a similar, albeit belated, pattern is expected to take place worldwide in the coming months.

Will everyone get stuck?

Given the history of the virus, it seems highly unlikely that a new, even more contagious variant would not become global. So far two strains of the virus have led to global outbreaks: the original “new” strain and Delta. In each case, they have seized it, despite obstacles we can scarcely imagine. ” With Omicron, the increase in transmissibility seems to be even greater than in the past.

“Think about what is happening in Asia, which hosts about 60% of the world’s population,” BofA notes. Omicron has already dominated some parts of the continent. Australia has seen a 30-fold increase in cases in less than a month, most likely because there is very little natural immunity due to severe restrictions in the last two years. India is at the beginning of what seems to be a huge rise. Estimates show that the cases could reach millions in a few weeks. Japan has seen an increase in recent days, although case rates remain very low.

Meanwhile, relative calm remains in other parts of Asia. Cases are declining in Korea as the Delta surge subsides, with few signs of increase outside the Philippines. China has not yet had to face Omicron. However, these areas are out of danger. All were affected by the Delta, albeit to varying degrees and with varying delays. The same should apply to Omicron.

The story is similar in Latin America. Argentina is in the middle of a big rise, but nothing seems to be happening in neighboring Brazil, where however it is considered a matter of time before it happens … Again, this means that the region will face a rolling wave.

The impact of quarantine

Covid waves are increasingly affecting the supply side of the US economy rather than the demand side. This is also true globally, although there has been less budget support for consumers in other countries. This is why the story of Covid’s financial impact has gone through a collapse in demand due to lockdown, the global supply chain and labor supply disruptions.

With Omicron, BofA expects that most parts of the world will see a brief, sharp shock to the job supply, similar to what the United States is currently experiencing. Even if most cases continue to be mild and quarantine requirements are reduced, the huge volume of cases is likely to lead to quarantine of large numbers of workers at the peak of the epidemic in each region.

Globally, this will lead to disruptions in different areas. One thing to note is that Omicron has not yet dominated the Asian countries most involved in the global supply chains, namely China, Japan, Korea and the ASEAN region. This means that we could see further disruption in supply chains in the spring, even when healthcare outlook in the US and Europe (probably) improves significantly, as Bank of America concludes.

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Source From: Capital

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