Tsunami or ripple? Global economy in doubt over Omicron

What to expect following the economic tsunami caused in early 2020 by the appearance of COVID-19 and the air gap in the first half of 2021? The surge in Omicron variant contaminations is worrying, even though global economies have become accustomed to living with the pandemic.

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The IMF warned at the beginning of December of a possible downward revision of its global growth forecasts, currently at 5.9% for 2021 and 4.9% for 2022. It might occur on January 25.

The World Bank has already taken the plunge on Tuesday, reducing its global growth forecast for 2021 and 2022 by 0.2 points, now to 5.5% and 4.1% respectively. According to a “worst case scenario” developed by the institution, growth might be cut by up to 0.7 points this year if Omicron engages in severe restrictions.

In the United States, “Omicron is already doing damage”, notes the chief economist of the rating agency Moody’s Mark Zandi, counting on 2.2% growth in the first quarter in the world’s largest economy, once morest 5.2 % before Omicron hit the headlines. These disturbances should dissipate in the second quarter, he says, however.

In the euro zone, Andrew Kenningham, chief economist for Europe at the Capital Economics research center, believes that “Omicron will not lead to a contraction in GDP in the first quarter” because a rebound in February has already been anticipated.

“Each wave does less damage to the health care system and the economy than the last,” summarizes Mark Zandi.

The uncertainty is greater for emerging countries and China. The former already suffer from high inflation and are often less vaccinated, while the latter applies draconian local lockdowns in the name of its zero COVID strategy.

Thousands of flights canceled during the holidays, hijacked or canceled cruise ships, hotel reservations at half mast: Omicron is hindering the hoped-for recovery of a travel sector that has suffered greatly from previous waves.

Entertainment experts are also worried that the explosion in cases may dampen the eagerness of customers to return to the casino, theater or cinema.

On the world stock markets, however, these sectors have been on the rise for a few weeks. “The market seemed to be planning for the post-Omicron period,” explains Alexandre Baradez, analyst for the IG France investment company.

Since December 20, the share of cruise line Carnival, that of Air France and that of the manufacturer of construction machinery and equipment Caterpillar have thus climbed by around 13%. These values, which are highly dependent on the economy, benefit from the hope of an imminent normalization of the economy.

The rate of inflation, already galloping before Omicron, might accelerate further. In the euro zone, it thus reached in December a peak for 25 years, at 5% over one year, according to the Eurostat statistical office on Friday.

“People who stay at home because of the variant are more likely to spend their money on consumer goods rather than on services like restaurants or entertainment,” said Jack Kleinhenz, chief economist of the American Federation of Traders ( NRF).

With global supply chains already overheating, leading to shortages of materials and raw materials, increased demand might push prices even higher.

This is the scenario feared by the US Federal Reserve, which plans to advance its rate hike schedule, according to the minutes of its last meeting.

Elsewhere, Brazilian and Nigerian households are seeing their purchasing power weighed down by double-digit inflation, and the British economy is on the verge of contraction according to the British Chambers of Commerce.

The massive spring 2020 business aid programs, which the IMF said drove global debt to $ 226 trillion last year, seem like a thing of the past.

“The use of devices such as short-time working made sense at a time when there was total uncertainty, the whole industry was at a standstill,” recalls Niclas Poitiers, researcher at the Brussels Bruegel institute, with reference to the first confinements.

But the planet has learned to live with COVID-19 and “we are now talking regarding putting in place more structural aid systems such as Build Back Better (which notably provides for social and environmental reforms in the United States) or Next Generation. EU ”, the European Union’s ecological and digital transition plan, he adds.

However, more targeted aid remains relevant for the most affected sectors, like the French or British programs for tourism and the hotel and catering industry.

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