Economists optimistic on impact of variant
CHRIS GILES — LONDON
Experts generally expect the world economy to weather any wave of coronavirus infections caused by the Omicron variant relatively easily, even if the latest outbreak has also clouded the economic outlook.
A central reason for their relatively optimistic initial assessment is the growing ability of economies to adapt to past Covid-19 restrictions, alongside the roll-out of vaccine programmes.
Any new wave of the virus was therefore also unlikely to curb the rise in inflation, the economists said, although it would raise doubts among central bankers about the wisdom of tightening monetary policy early.
Among the large range of analysts who published notes and forecasts yesterday — be they from investment banks or consultancies — all stressed the uncertainty generated by the Omicron variant’s ability to evade existing vaccines, cause severe disease and spread faster than the Delta variant.
At the same time, though, few thought there was a need to rip up their current economic projections.
Paul Donovan, chief economist of UBS Global Wealth Management, said that travel and tourism might be hard hit in some places, but this was generally quite a small part of overall economic activity. The Omicron variant was “unlikely to change the broader economic narrative at this stage”, he said.
Holger Schmieding, chief economist of Berenberg Bank, said: “From wave to wave, the economic damage has lessened.” He pointed to the contrast between the first and second European waves of Covid: while the first knocked 15 per cent off eurozone economic activity in the second quarter of 2020, general adaptation to living with the virus led to only a 0.7 per cent drop in GDP in the more severe second wave in early 2021. Furthermore, even if the Omicron variant has greater resistance to current vaccines, the prevailing view was that inoculation against it would help to reduce the economic impact.
Daniele Antonucci, chief economist at Quintet Private Bank, said: “The developed world can now count on high vaccination rates, has ramped up its capacity to develop and produce vaccines, and has shown it can adjust working patterns fairly flexibly and adapt more generally.”
Most economists believed that any slowdown in economic activity was also unlikely to curb the recent surge in inflation, particularly in goods where demand has outstripped global supplies, which have been riven by disruptions.
Neil Shearing, chief economist of Capital Economics, said: “A virus-related surge in goods spending, or port closures, would exacerbate existing supply strains and add upward pressure to goods inflation.”
“It’s not clear it’s [the Omicron variant] disinflationary,” said Jordan Rochester, a foreign exchange strategist at Nomura in London.
While accepting there is huge uncertainty, Goldman Sachs economists produced four possible scenarios for any coming Omicron wave, including one which is a false alarm and the new variant proves no more infectious than the Delta variant.
Its main downside scenario suggested there would be only a small economic hit from the virus in 2022 because the impact of each subsequent lockdown in the past has been weaker. These restrictions would lower global growth significantly in the first quarter, until new vaccines arrived and brought with them a robust recovery.
The uncertainty is likely to encourage central banks to stay their hand and wait a little longer before deciding whether to tighten monetary policy.
In a note on Friday, Citi’s European economists wrote that the new uncertainty would be “a major alert” for central banks and that “the recovery path may not be as straightforward as originally thought”.
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Articolo tratto da “Financial Time” del 30/11/2021