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February 8, 2022

Macro view: Omicron pushes global growth to one-and-a-half year low

The Omicron wave disrupted activity across both manufacturing and services, suppressing demand and exacerbating labour supply issues in January, say economists.

Chris Williamson

Chris Williamson, chief business economist at the IHS Markit, shared an article on the Omicron wave pushing global economic growth to a one-and-a-half year low. Although the easing of Covid-19 restrictions would help revive the expansion, other headwinds could outweigh this boost, say economists.

Rising Covid-19 infection rates and its economic fallout caused the global economic growth to slow to an 18-month low during the beginning of 2022. According to the JPMorgan Global PMI compiled by the IHS Markit, worldwide output across both manufacturing and service sectors dropped from 54.3 in December to 51.4 in January, its lowest since July 2020 and the second lowest seen during the recovery from the initial pandemic shutdowns of early 2020.

A weaker PMI output data coincided with Covid-19 flare-ups around the world, with record high new virus cases reported across economies such as the US, Europe, and Japan in the first month of the year. Despite evidence of falling case numbers, the cases remain elevated, often at unprecedented levels.

The easing of Covid-19 restrictions in February and March is expected to revive the global economy again, though uncertainty around the Omicron variant still remains uncertain.

Rafael Domenech

Rafael Domenech, head of economic analysis of BBVA Research and professor of economics at the University of Valencia, tweeted on the European Central Bank (ECB) rate expectations stinging Greek and Italian government debt. As a result, borrowing costs for southern eurozone governments jumped close to pre-Covid highs on Monday as investors adjusted to signs of the ECB to raise interest rates as early as this year to contain the inflation.

The ECB is looking at raising rates for several months, and keeping the financial conditions favourable until the eurozone has completely rebounded from the Covid-19 pandemic. It is also convinced that inflation will settle at its 2% target over the medium term.

However, the president of ECB, Christine Lagarde signalled a hawkish shift by refusing to rule out the rise in rates this year. Klaas Knot, the Dutch central bank head also pushed for the rise in interest rates at the end of this year, cautioning that the eurozone inflation was likely to remain at 4% for most of 2022. This led to the yield on Italian ten-year bonds up 0.1 percentage points to 1.84 per cent, back to April 2020 levels right after Covid-19 hit.

Andrew Leigh

Andrew Leigh, member of the Australian Parliament, and former professor of economics at the Australian National University, tweeted on the JobKeeper payment scheme having helped save jobs and support businesses during the Covid-19 pandemic in Australia. However, the Morrison government did not have to give it to high-fee schools with rising profits, as this was not the ideal way to use taxpayer money during a recession or a pandemic.

About 24 private schools in Western Australia (WA) that cater to the most privileged students have collected a combined total of $77m through federal JobKeeper payments during the 2020 pandemic, enabling most to turn healthier profits than they did pre-Covid.

The federal support scheme that was enacted in 2020 required businesses to show or forecast a 30-50% drop in revenues because of the impact of the Covid-19 crisis. Every WA private school, except one made a profit out of the JobKeeper payment programme, in addition to increasing profits over the previous year, with experts calling JobKeeper a ‘gravy train’ for private schools.

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