Posthaste: How Omicron could knock the economy off track — and may already have

Posthaste: How Omicron could knock the economy off track — and may already have
© Provided by Financial Post The Omicron variant of COVID-19, first detected in South Africa on Nov. 8, has now spread to at least two dozen countries from the U.S. to South Korea.
Posthaste: How Omicron could knock the economy off track — and may already have

Good Morning!

Economists are sharpening their knives to cut growth forecasts as the threat of the new COVID variant Omicron looms over the world.

Everybody agrees it’s too early to judge the health implications. There is no evidence yet on whether Omicron is more transmissible, has more severe symptoms or whether existing vaccines will work or not.

That’s what we don’t know. What we do know is governments are already reacting to Omicron by bringing back restrictions, especially on foreign travel. “The latest development underscores that the path to normalcy will continue to be bumpy and uncertain,” said Ben May and Innes McFee of Oxford Economics.

The Omicron variant of COVID-19, first detected in South Africa on Nov. 8, has now spread to at least two dozen countries from the U.S. to South Korea and the world is bracing for the worst.

On Monday, the World Health Organization said the global risk of Omicron is “assessed as very high.”

South Africa said today it was seeing an increase in COVID-19 reinfections in patients contracting Omicron in a way that it did not experience with previous variants, Reuters reports.

“Previous infection used to protect against Delta but now with Omicron that doesn’t seem to be the case,” said Professor Anne von Gottberg during an online briefing organized by the World Health Organization.

A top scientific adviser in France said Omicron could become the dominant COVID-19 variant in that country by the end of January.

Markets too are clearly nervous. After the ugly sell-off on Black Friday, stocks have see-sawed between red and green. Yesterday they started to bounce back, but then fell after the first U.S. case was confirmed.

“It was the worst back-to-back sell-off we experienced since October 2020 and it may not be over,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote.

This morning U.S. futures were edging up again.

In the most optimistic view, Oxford says Omicron could turn into a blessing in disguise. If vaccine efficacy holds up and symptoms are less serious, the economists argue it could speed up the transition back to normalcy and any curtailment of economic activity from renewed restrictions could easily be made up early in the new year.

People would be reassured that even though the virus is still around its economic impact will lessen, Oxford said.

And the worst case? “Although far from inevitable we can’t discount the possibility that Omicron will have greater transmissibility, similar or worse symptoms to Delta, and is more resistant to vaccines,” said May and McFee.

If that happens, more restrictions will be imposed causing more disruption to supply chains, economic growth will slow and financial markets weaken, they said. With fiscal stimulus already stretched and monetary policy loose, advanced economies will have little firepower to fight a fresh downturn.

Oxford sees global growth slowing to 2.3% in 2022 under this scenario, with the U.S. and eurozone economies falling 2 percentage points from its baseline forecast of 4.5% and 4.2% respectively.

Scenarios aside, Oxford still plans to cut its global growth forecasts for the fourth quarter of 2021 and first quarter of 2022 on Dec. 6, just based on what’s happening now.

It sees global growth being reduced to 75-80% of its current forecast because of “tighter restrictions, further supply-chain disruption and more cautious behaviour by households and firms.”

At this point they assume this can be made up in the second half of 2022.


And how will policy makers respond if Omicron has a significant impact on the economy? Central banks are likely to pull back on hawkish signals, and Oxford points out that market pricing of policy rates has already shifted lower.

“It’s a stretch to imagine that advanced economy central banks would look to tighten policy at the same time as governments are ramping up restrictions on activity.”


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Posthaste: How Omicron could knock the economy off track — and may already have

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Posthaste: How Omicron could knock the economy off track — and may already have
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Posthaste: How Omicron could knock the economy off track — and may already have
© Provided by Financial Post  

Posthaste: How Omicron could knock the economy off track — and may already have
© Provided by Financial Post _______________________________________________________

Posthaste: How Omicron could knock the economy off track — and may already have
© Provided by Financial Post  

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Posthaste: How Omicron could knock the economy off track — and may already have
© Provided by Financial Post

The OECD was quick off the mark to access the threat that Omicron, the COVID variant just identified last month, poses for the global economy. Organisation for Economic Co-operation and Development left its growth forecasts largely unchanged but hiked its inflation outlook substantially, as the Financial Times chart below shows. The OECD warned that the new variant threatens to make supply shortages and inflation worse and further slow growth and raise costs, delaying the world economy’s return to normality. Now the OECD expects 4.4% inflation in 2022 across the G20, up from its previous forecast of 3.9% with the U.S. and UK seeing the biggest increases.

Posthaste: How Omicron could knock the economy off track — and may already have
© Provided by Financial Post


Posthaste: How Omicron could knock the economy off track — and may already have

These days everybody is looking for investments that hold up against inflation. It might sound crazy but have you considered farmland?

New approaches to farmland investing are making it easier for Canadian retail investors and our content partner MoneyWise has some helpful advice on how to plant your money and watch it grow.


Today’s Posthaste was written by  Pamela Heaven (@pamheaven), with files from The Canadian Press, Thomson Reuters and Bloomberg.

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