The number of Omicron cases is rising at a frightening pace, with forecasts warning of another blow this new wave of coronavirus is likely to deliver to the global economy. The World Bank expects global GDP to grow 4.2% in 2022, but The Wall Street Journal recently argued this projection should be reduced to 3% due to accelerating inflation and supply gaps.
The problem, however, is that the Omicron variant’s extremely high virulence may have two different economic implications. As we know, the virus hurts the economy indirectly; most disruptions are caused by lockdowns and other precautions governments take to contain the outbreak.
If Omicron is significantly more contagious than the previous strains, what does it mean? Do countries have to introduce stricter lockdowns? Or can they all just relax because no lockdown will stop a virus that is spreading so fast? The latter may be true also because Omicron is less deadly than Delta and everybody is simply exhausted by endless lockdowns, also fearing negative economic consequences. Even the World Health Organization recommended lifting or relaxing foreign travel restrictions because they cannot contain the spread of Omicron but damage the economy.
According to Freedom Finance, there should be no serious repercussions for the global economy from Omicron. Analysts of the investment company believe that the new strain can only slow down the recovery — and only if the existing vaccines are less effective against the new strain. Judging from the incidence rate, every new surge in the number of cases affects markets less and less.
Freedom Finance also predicts that the major sectors that will take longer time to bounce back to the level of late 2019 are passenger transportation, tourism, hospitality, sporting and entertainment event management companies, restaurant businesses, personal services, organizers of conferences, exhibitions and cultural events as well as the transport industry.
At the same time, Freedom Finance analysts expect that during the first six months of 2022, inflation will continue to grow, mostly due to decisions of central banks around the world: as long as the printing press is running, inflation is impossible to stop. Experts, however, predict that in H2 2022, a major part of central banks will start to toughen their monetary policies to contain the inflation.
Director of the Analysis Department at the Sinara Investment Bank Kirill Tachennikov is also not too worried about the new wave. He thinks that, despite the surge in new cases, the economic consequences are still rather limited and mainly come down to the ban on flights to and from South African countries — a ban that is already partially lifted.
No significant lockdowns affecting economic activity and demand have been announced yet. There is also a widespread opinion that Omicron is a “natural vaccine” that will help achieve the endemic stage of the pandemic thus opening up borders and stimulating further economic recovery in the world.
All that may be true but here in Moscow, one cannot help but feel slightly alarmed seeing that many companies are switching to remote work again.
“Despite the fact that Omicron mostly causes mild cases, many companies have to send their employees home in another reiteration of previous lockdown scenarios,” comments Investing.com Russian Country Leader Anastasia Kosheleva.“Companies are shutting down; ports are overwhelmed with cargo, staff shortages hitting the supply chains that have not yet fully recovered from the past waves.”
According to the expert, the closure of several cities and large-scale testing in China has created production problems for companies around the world, including Volkswagen, the textile supplier working with Nike and Adidas, Samsung microchip manufacturer and many others. Logically, companies are incurring higher production and logistics costs, which is raising the price for end consumers and pushing inflation.
And of course, the longer we have reasons to stay home, the bigger is the digitalization trend triggered by the pandemic. According to CS-Cart CEO Ilya Makarov, the pandemic creates big opportunities for various business niches thanks to the key current trend of changing consumer behavior.
“If previously, the shift towards online services was slow, the pandemic has accelerated this transition. More people are changing their occupation, taking online courses and ordering groceries online. These changes are comparable to a technological revolution,” Ilya Makarov notes.
“Despite numerous negative forecasts, the pandemic could have some positive effects,” says XWAY CEO Anton Larin. “First of all, it concerns the digital transformation of various economic sectors. Last year, many companies had an impetus for development due to the introduction of new software based on cutting-edge IT technologies designed to automate and streamline processes. As the situation aggravates, the popularity of these solutions will keep growing. Also, the new coronavirus variant promotes the demand for services related to new business activities such as remote services, outsourcing and logistics.
Ivan Smarzhevsky, Ph.D. in Economics, Associate Professor at the Department of Economics, Peoples’ Friendship University of Russia, believes that humankind has adapted to the coronavirus: it has accumulated experience of providing economic support for the citizens (in developed economies), mobilizing resources (army, volunteers, etc.), detecting weak spots (the transportation of those in critical condition to ICUs; coffins to morgues and cemeteries), and changing operational procedures in state and private companies (all intellectual work can be dome remotely; online sales are showing explosive growth, the salaries of delivery personnel hitting all-time records).
According to Ivan Smarzhevsky, the most affected sectors (tourism, air travel, entertainment, catering) are losing jobs and businesses but are seeing the rotation of players: new ones come in hope of seizing the opportunity for a startup, and the further recovery of demand.
“Anti-vaxxers are the driving force for economic recovery,” the economist concludes.
By Konstantin Frumkin