Omicron Mutation: Questions about how it will affect the global economy

What to expect after the financial tsunami of early 2020 caused by the appearance of Covid-19 and the vacuum of the first half of 2021? The resurgence of the Omicron variant is worrying, even if global economies have become accustomed to living with the pandemic.

Global development under threat?

The scale of the economic impact of the Omicron variant is uncertain, but growth could be undermined as long as Omicron’s health constraints and transmissibility disrupt business operations.

The head of the International Monetary Fund, Kristalina Georgieva, had warned since the beginning of December about the possibility of revising downwards the forecasts for global growth, which is currently 5.9% for 2021 and 4.9% for 2022. This review can be done by the end of January.

In the United States, “Omicron already has implications,” says Moody’s chief economist Mark Zandi, who forecasts 2.2% growth in the first quarter in the world’s first economy, up from 5.2% before Omicron comes to the fore. . The disorder is, however, expected to subside in the second trimester.

For the eurozone, Andrew Kenningham, chief economist for Europe at the Capital Economics Research Center, believes that restrictions such as the Dutch and Austrian lockdowns will slow down in the first quarter and then recover, especially if the epidemic peaks in January. .

“Each wave causes less damage to the health system and the economy than the previous one,” concludes Mark Zandi.

Uncertainty is greater for emerging economies due to low vaccination rates, and China, which is implementing draconian local lockdowvn in the name of its “zero Covid” strategy.

What are the most vulnerable sectors?

Thousands of holiday cancellations, interrupted or canceled cruises, low hotel bookings: Omicron is disrupting the recovery of the tourism sector hit hard by previous epidemic waves.

Entertainment experts also fear that the eruption will curb the return of customers to casinos, cinemas and theaters.

In the international stock markets, these sectors have been emerging dynamically for some weeks. “The market seems to be envisioning the post-Micron era,” said Alexandre Baradez, an analyst at investment firm IG France.

As of December 20, the share of the cruise company Carnival jumped close to 20%, the share of Air France 15% and Caterpillar almost 25%. These stock values ​​are highly dependent on the current situation and benefit from the hope of an imminent normalization of economic activity.

Will inflation worsen?

Before Omicron, inflation in the United States and the eurozone was at its highest level in decades. Its pace can be accelerated further.

“People who stay at home because of Omicrons are more likely to spend their money on consumer goods than on services such as catering and entertainment,” said Jack Kleinhenz, chief economist at the American Commercial Association (NRF).

Global supply chains were already overheating, leading to shortages of materials and raw materials. An increase in demand that could cause further price increases.

This is the scenario that worries the US Federal Reserve (FeD), which is aimed at accelerating interest rate hikes, according to the minutes of the last meeting.

Elsewhere in the world, Brazilian and Nigerian households are seeing their purchasing power undermined by double-digit inflation and the British economy is on the brink of contraction, according to the British Chamber of Commerce (BCC).

The planet has learned to live with Covid-19

The massive financial aid programs for businesses in the spring of 2020, which boosted global debt to $ 226,000 billion last year, according to the IMF, now seem like old history.

“Recourse to schemes such as contract suspension made sense at a time of utter uncertainty when the industry was shutting down,” said Niclas Poitiers, a researcher at the Bruegel Institute, referring to the first lockdowns.

However, the planet has learned to live with Covid-19 and “we are now talking about implementing more structured aid programs such as Build Back Better (which envisages the implementation of social and environmental reforms in the United States) or Next Generation EU, the environmental and digital switchover of the European Union.

More targeted aid programs, however, remain needed for the worst-hit areas, such as the French and British tourism, hospitality and hospitality programs.

Source: AMPE