Fears that Omicron might be resistant to existing vaccines shaved roughly $2tn off global stocks on Friday, but markets settled down on Monday.
Investors were again slammed yesterday over fresh concerns about the efficacy of existing vaccines vis-à-vis the new variant.
President Joe Biden on Monday cautioned Americans against panicking over the new variant of the coronavirus first identified in South Africa, and urged them to instead get vaccinated or obtain booster shots.
Omicron is now prompting economists to rethink the initially rosy forecasts about 2022.
If the mutation necessitates a return to growth-crippling lockdowns, it would add to the strain on supply chains and damage recovering demand. If the health effects turn out to be mild, the economic reaction could be muted and short-lived.
In the best-case scenario chalked out by Goldman Sachs Group, Omicron proves to be a “false alarm,” with no significant impact on global growth and inflation.
In its second-worst scenario, a large infection wave in the first quarter of 2022 sees global growth slow to a 2% quarter-on-quarter annual rate: 2.5% percentage points below their current forecast.
For sure, the new variant is dealing a blow to optimistic hopes that the world economy would enter 2022 on a firmer footing.
The imposition of travel restrictions will shake consumer and corporate confidence, likely limiting activity in some places just as the holiday season gets underway in many economies.
What comes next will be dictated by what scientists discover about the new Covid-19 variant, including how resistant it is to vaccines and how more transmissible it is than the Delta variant which raged in recent months without sending economies back toward recessions.
The International Monetary Fund in October warned that the recovery had lost momentum and become increasingly divided.
One challenge for policy makers battling the economic aftershocks of a sustained outbreak will be the fact that they have fewer options after last year’s stimulus effort.
Only a handful of central banks have tightened monetary policy since the end of last year’s recession and the developed world’s key benchmarks remain around zero, meaning they lack room to come to the rescue again.
Governments are already shouldering soaring debt burdens.
Traders have rushed to wager that the Federal Reserve and its peers will be slower to raise rates.
Even so, Federal Reserve Bank of Atlanta president Raphael Bostic on Friday played down the risk of the new variant and remained “very open” to accelerating the withdrawal of the Fed’s asset purchase programme.
European Central Bank governor Luis de Guindos said he too thought “the effects over the economy will be more limited than last year.”
Some economists also say the fallout may be less severe than seen during the 2020 recession. Governments, albeit not China’s, have shown a reluctance to rush back into lockdowns.
Globally Covid cased have topped 262mn with deaths crossing 5mn, while more than 7.96bn doses of vaccines have been given, according to a Bloomberg tracker.
True, global policy makers are now better equipped to deal with Covid-induced social, political and economic disruption.
But the out-of-the-blue emergence of Omicron gives the world a grim reminder that the pandemic may remain a nagging threat for the global economy for years to come.
