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January 11, 2022

Macro view: Omicron likely to peak higher but for a shorter duration

Some economists believe that the Omicron variant will spread quickly, peak, and decline more rapidly than the Delta variant, leading to lower hospitalisations and deaths worldwide.

Arvind Virmani

Arvind Virmani, economist and former representative to the International Monetary Fund (IMF) and chief economic advisor to the Government of India, shared an article on the debate of the highly contagious Omicron variant having a severe impact on the global economic recovery or its mild symptoms keeping economies from sinking again.

The Omicron wave has rattled global economic recovery, throwing several industries like the travel sector into disarray again, workers forced to work from home, and governments conflicted with a choice to either impose restrictions or let the economy function.  

Kristalina Georgieva, the head of the IMF, warned last month that global economic growth forecasts would have to be slashed due to the impact of the new Omicron variant. The IMF had earlier predicted a growth of 5.9% for 2021 and 4.9% in 2022. However, it was likely to revise its estimates later this month.

US health authorities have also reduced the isolation period for asymptomatic cases by half to five days, to soften the blow on the economy. Meanwhile, economists like Mark Zandi expect a US growth rate of 2.2% in the first quarter of 2022, which is more than half lower than a previous estimate of 5.2%. However, he also expects Omicron to decline more quickly and growth to rebound in the second quarter. He believes that each virus wave is doing less damage to the economy and healthcare system than the previous wave.

Frederik Ducrozet

Frederik Ducrozet, global macro strategist at Pictet, tweeted on the member of the executive board of the European Central Bank (ECB), Isabel Schnabel’s speech on Covid-induced rise in energy prices and the green transition having moved markets for the right reasons, signalling a regime shift in the ECB’s reaction function.

The global economy was struck by a major energy crisis in 2021, when the prices of oil, gas, and electricity skyrocketed as a result of the reopening of economies after the shutdowns were imposed to curb the spread of Covid-19.

Schnabel believes that a green transition will reinforce the demand and supply imbalances triggered in the gas market as global growth accelerated during the pandemic, thereby pushing gar prices to record highs in November in the European Union (EU). For instance, wholesale electricity prices in the euro area touched $222.20 per megawatt hour, four times the average in the two years before the Covid-19 outbreak.

Steve Keen

Steve Keen, economist and associate professor of economics and finance at the University of Western Sydney, retweeted a podcast shared by the Brave New Europe on what is driving the Great Resignation after emerging from the worst phase of the Covid-19 pandemic.  

Despite employment levels remaining below pre-pandemic levels in most countries, workers who held onto their jobs during the pandemic are now quitting the same jobs at record rates. According to the US Bureau of Labour Statistics (BLS), there are about three million Americans who had a job before the pandemic and do not have a job now. Additionally, there are about 11 million jobs to be filled as per the job openings data compared to the seven million jobs before the pandemic.

Economists believe that the balance of bargaining power has shifted after the pandemic, with workers now quitting their jobs at record rates to get better pay elsewhere in the US. However, they also believe that central banks are slowing down the economy by raising interest rates to stop these wage pressures.

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