Will Omicron have a slight or severe effect on the global economy?

The World Bank has warned that the “economic disruption caused by Omicron” will cause growth to decelerate.

Paris:

After limping back from the Covid pandemic last year, the global economic recovery has been rocked by the rapid rise of the Omicron variant.

The travel industry has once again been plunged into disarray, workers have been forced to isolate themselves at home, and governments are faced with a difficult choice between imposing restrictions or letting the economy go into turmoil.

Could the highly contagious variant of Omicron have a severe impact on recovery? Or will its mild symptoms prevent the economy from sinking again?

How much of a blow to growth?

The World Bank on Tuesday revised its global forecast for 2022 downwards, warning that “economic disruptions caused by Omicron”, among other factors, would cause growth to “decelerate sharply” this year.

The Washington-based lender said growth would slow to 4.1% after rebounding 5.5% in 2021, but warned it could be as low as 3.4%.

World Bank President David Malpass has expressed concern at the “huge toll” the pandemic is weighing on poor countries, highlighting “disturbing reversals in poverty, nutrition and health.”

The head of the International Monetary Fund, Kristalina Georgieva, warned last month that it could also lower its forecast for global growth due to Omicron.

The IMF previously expected growth of 5.9% for 2021 and 4.9% this year.

To lessen the blow to the economy, US health officials have cut the isolation period for asymptomatic cases from half to five days.

Mark Zandi, chief economist at Moody’s, told AFP he expects US growth of 2.2% in the first quarter, more than half of a previous estimate of 5.2%.

“Omicron is already causing economic damage, as evidenced by declining credit card spending, declining restaurant reservations, flight cancellations and the return of many schools to online learning,” Zandi said.

“However, I expect Omicron to pass quickly and growth to rebound in the second quarter, and growth for the year to be unaffected,” he added.

“Overall, I think each wave of the virus does less damage to the health care system and the economy than the previous wave.”

In the eurozone, tighter restrictions, consumer cautiousness and absenteeism will reduce economic activity in the coming weeks, but the economy will rebound in February, according to Andrew Kenningham, chief economist Europe at Capital Economics.

Developing countries with lower vaccination rates face greater uncertainty, and a zero Covid policy in China could hamper the growth of the world’s second largest economy because it locks down entire cities.

Will tourism suffer?

The travel industry has been eagerly awaiting a rebound in 2022 after being devastated by border closures and blockades.

But Omicron’s emergence during the key winter vacation period has resulted in thousands of flight cancellations, forced cruises to dock, and fewer hotel bookings.

Investors, however, have been bullish as airline and cruise shares have risen in recent weeks.

“The markets seemed to be watching the post-Omicron period,” said Alexandre Baradez, analyst at IG France.

Is inflation going to get worse?

The economic recovery had a negative side effect: Inflation reached decades high levels in the United States and Europe as energy prices soared and growing demand faced supply shortages.

Central banks have insisted that the high inflation is only temporary and prices will eventually come down, but it has hurt consumers and businesses.

“Omicron’s impact on consumer demand is unclear, but people who stay home because of the variant are more likely to spend their money on retail products rather than services such as dining out or in-person entertainment, ”said Jack Kleinhenz, chief economist. to the National Retail Federation of the United States.

“This would put additional pressure on inflation since supply chains are already overloaded across the world,” he said.

Supply chain bottlenecks caused shortages of many materials last year, pushing up prices for many products. A higher demand for products over available goods could further fuel price increases.

The Federal Reserve rocked the markets last week, signaling that it was ready to tighten monetary policy more aggressively to bring inflation under control.

End of the recovery?

Governments rolled out massive stimulus packages in 2020 to save their economies, racking up $ 226 trillion in debt, according to the IMF.

Leave programs to keep people at work “made sense” as there was so much uncertainty and entire industries were shut down, said Niclas Poitiers, a researcher at Bruegel, a Brussels-based think tank.

“I do not yet see the need for massive funds for the economy,” Poitiers said.

Instead, the United States and Europe are investing in structural programs, such as President Joe Biden’s $ 1.75 trillion “Build Better” social and climate spending plan.

(Except for the title, this story was not edited by NDTV staff and is posted from a syndicated feed.)

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