Omicron variant “wreaks havoc” on US economic growth threatened?

The extent of the economic damage caused by the variant is uncertain, but growth could be adversely affected as businesses are disrupted by Omicron’s health restrictions and contagiousness. The boss of the International Monetary Fund Kristalina Georgieva warned at the beginning of December of a possible downward revision of her forecasts of global growth, currently at 5.9% for 2021 and 4.9% for 2022. It could occur by now at the end of January. 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, against 5, 2% before Omicron hits 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, also believes that restrictions such as Dutch and Austrian lockdowns will cause a slowdown in the first quarter and then a rebound, especially if the epidemic peak occurs in January.

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“Each wave does less damage to the health system and the economy than the last”, summarizes Mark Zandi. The uncertainty is greater for emerging countries and China, the former being less vaccinated and the latter applying draconian local containments in the name of its zero Covid strategy.

Which sectors are the most affected?

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 of 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 projecting after Omicron”, explains Alexandre Baradez, analyst for the investment company IG France.

Since December 20, the share of cruise line Carnival has climbed by nearly 20%, that of Air France by around 15% and that of the manufacturer of construction machinery and equipment Caterpillar by almost 25%. These values, which depend heavily on the economy, benefit from the hope of an imminent normalization of the economy.

Is inflation going to get worse?

Before Omicron, inflation in the United States and the euro zone was at its highest for several decades. Its pace could accelerate further. “People who stay at home because of the variant are more likely to spend their money on consumer goods rather than on services such as restaurants or face-to-face 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 could 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 (BCC).

The return of “whatever the cost”?

The massive spring 2020 business aid programs, which pushed global debt to $ 226 trillion last year according to the IMF, seem like ancient history. “The use of devices such as short-time working made sense at a time when the uncertainty was total, the entire industry was at a standstill,” recalls Niclas Poitiers, researcher at the Bruegel Institute, with reference to the first confinements.

But the planet has learned to live with Covid-19 and “we are now talking about 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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