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January 21, 2022

Macro view: Omicron to affect GDP growth if restrictions ease

Some economists believe that as holiday demand and supply chain woes ease, the situation should improve in 2022 but Omicron could get in the way in the short-term.

Armine Yalnizyan

Armine Yalnizyan, an economist, writer, and former senior economist with the Canadian Centre for Policy Alternatives, tweeted on the intersection between the Covid-19 pandemic and economic variables and what to expect next. She also highlights through an article shared by Eric Lascelles, chief economist at RBC Global Asset Management, on how Omicron infections will begin to fade in January 2022, but will revive shortly thereafter as restrictions ease, thereby affecting the growth and GDP of many countries.

The analysis finds that globally, the world now reports more than twice as many new Covid-19 infections each day as the prior peak. However, fatalities remain far lower than the earlier peaks due to less severe infections. It was also found that a majority of the new infections are being reported from developed world, with cases in the emerging market also beginning to rise in recent weeks.

The Omicron has been found to have a natural reproduction rate as high as 10, implying each sick person can infect ten other people. This is a huge leap from the original strain, which had a reproduction rate of 2.5 and Delta nearly seven. However, experts state that the Omicron is not the most contagious virus, and the world has seen other contagious viruses, such as measles that can make one sick person infect 15 others.

Currently, the existing vaccines and prior infections are not working well against the Omicron, therefore the rising cases. However, medical experts believe that it is less severe as it is affecting the upper respiratory system. As a result, several countries such as South Africa, Scotland, Denmark, and New York state have been reporting reduced hospitalisations due to Omicron compared to other variants.

Described as tall and brief, the Omicron has already peaked in South Africa and is reporting falling cases from London, while the US and other countries are likely to experience a peak in their daily infection rate in January due to lesser socialising and with the fraction of population with immunity gradually rising. However, experts warn that the Omicron could heat up if governments ease restrictions in the coming weeks.

Martin Sandbu

Martin Sandbu, an economics leader writer for the Financial Times and former senior research fellow at the Zicklin Center for Business Ethics Research at the Wharton School, University of Pennsylvania, retweeted an article shared by Nicolas Goetzmann, head of research and macroeconomic strategy at Financière de la Cité, on being still wrong to panic about US inflation. Sandbu states that the latest US data continues to show Covid-19 disruption, but not excessive demand.

US inflation hit 7% for the first time in nearly 40 years due to the Covid-19 pandemic and its associated disruptions. However, Sandbu believes that the year-on-year measures should firstly be ignored, and whatever the factors driving these dynamics is also likely to change fast and erratically.

Sandbu also highlights that experts who argue in favour of inflation to fall by itself, do so because they do not believe that it is the result of excessive aggregate spending. Instead, it has been due to the enormous and extraordinary shift of spending away from services to goods during the pandemic. Therefore, the ones worried about inflation are fearing price pressures to spread from goods to services, which cannot be supported.

He also writes that other economies have also seen a rise in inflation during the virus crisis but due to different factors. For instance, Europe did not experience the same swing of spending from services to goods, according to the OECD chief economist Laurence Boone.

Jim Stanford

Jim Stanford, director of the Centre for Future Work in Vancouver, shared a latest research on Canadian workers being sent back to work after only five days isolation on account of Covid-19 infection or exposure, not because they are safe to return, but because they are needed back on the job.

Teresa Tam, chief public health officer of Canada, stated to the House of Commons health committee that the latest evidence does not reveal that the Omicron variant is contagious for less time than the original strain or the Delta variant. However, the rise in infection numbers is stressing workforces and therefore a reason to end isolation periods early, a difficult decision provinces are being forced to adopt.

Despite the Public Health Agency of Canada recommending people infected with Covid-19 to isolate for at least ten days after they tested positive or symptoms began, whichever came first, every province and territory has stopped following the advice starting with Saskatchewan and Ontario on the 30 December 2021.

Unlike the Centers for Disease Control and Prevention (CDC) in the US, which has cut the isolation period to five days from ten, in Canada the shorter isolation period only applies to those who are fully vaccinated, and those who are administered with booster shots in the Northwest Territories. Nova Scotia, Newfoundland and Labrador, and Prince Edward Island, along with Nunavut and Yukon, have cut the isolation period down to seven days from ten for vaccinated individuals. All other provinces and the Northwest Territories have cut the isolation period to five days.

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