the growing omicron variant is complicating the recovery of a global economy that continues to be rocked by supply chain chaos, worker absenteeism and faltering assembly lines.
Supermarkets are struggling to stock shelves amid chronic staff shortages. Airlines are canceling flights. Manufacturers face disruption and shipping lines remain congested. At the same time, rising energy prices are adding to inflation, putting pressure on central banks to raise interest rates even as the recovery slows.
Optimists argue that the economic impact of omicron it will be limited as vaccines and boosters will allow the disease to go from an acute to an endemic phase. US Treasury Secretary Janet Yellen said she does not expect the variant to derail the US recovery.
Nomura’s analysis of the impact of omicron in early affected countries such as the UK and Canada shows waves of shorter duration, faster declines from peaks, and lower mortality rates than the delta variant. That means that the factor of psychological fear it could soon disappear and pent-up demand for services would be unleashed.
Still, as the pandemic persists into its third year, it is becoming clearer every day that a return to economic normality is far. The world economy is now divided between countries living with the virus and China’s dogged pursuit of Covid-zero.
Such cross-currents pose an unusual combination of challenges that risk becoming embedded in the long-term outlook, according to economists at Citigroup Inc. Their counterparts at JPMorgan Chase & Co. say global growth is now slowing due to resistance from the omicron.
The world Bank it has already lowered its growth outlook and International Monetary Fund Managing Director Kristalina Georgieva on Friday predicted a tough year for policymakers, saying 2022 will be like “navigating an obstacle course”. The IMF will publish new forecasts in the coming days.
“There is a risk of underestimating the economic impact of the increase in omicron cases,” said Tuuli McCully, head of economics at Asia-Pacific at Scotiabank.
“While it seems that the severity of the variant is reduced and therefore the economic consequences would be milder and focused on the first quarter, it is still too early to say with certainty given that cases are skyrocketing in many parts of the world.”