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December 1, 2021

Omicron variant to slow down US economy – leading macroeconomic influencers

Fed Chair Jerome Powell to warn the Senate against the downside risks to US employment and business activity due to the emergence of the Omicron variant.

Fed Chair Jerome Powell believes that the emergence of the new variant and the recent rise in Covid-19 infections will slow progress in the labour market and intensify supply chain disruptions, leading to increased uncertainty over inflation.

Daniel Lacalle

Daniel Lacalle, economist and a CIIA-certified financial analyst, shared an article on the re-elected Fed Chair Jerome Powell to warn the US Senate Banking Committee on Tuesday about the downside risks the new variant and rising Covid-19 cases could pose to the US economy. Powell who will be joined by Janet Yellen the Treasury Secretary, believes that virus fears will reduce employment and economic activity, leading to a further complicated inflation outlook.

The Treasury Secretary and Fed Chair are required to submit a report to the Congress every calendar quarter as per the March 2020 economic relief legislation that drove the central bank’s Covid emergency lending programmes last year. Powell believes that labour shortages and supply chain disruptions caused by the new virus cases will continue to push prices up until the next year.

He also predicted a significant drop in prices in 2022, as bulked-up supply chains overtake the cooling demand for goods. Powell’s remarks came immediately after the new Omicron variant drove investors to drop US stocks and reduce their expectations for future Fed rate hikes.

Linda Yueh

Linda Yueh, economist and an adjunct professor of economics at the London Business School, and a fellow in economics at the Oxford University, tweeted on eurozone inflation rising to 4.9% in November, a record high in the past two decades. Experts state that the rise in consumer prices caused by the Covid-induced shortages and supply chain bottlenecks will put more pressure on the European Central Bank (ECB) to reduce its monetary stimulus.

Additionally, German consumer prices rose to 6%, the fastest increase in 30 years. Christian Linder, Germany’s new finance minister believes that inflation raises new concerns, while currency devaluation will have to be observed after the pandemic.

The biggest driver of inflation in the bloc was caused by a 27.4% uptick in energy prices in November compared to a year earlier. However, the prices of services, food, and goods also increased faster than the European Central Bank’s (ECB) 2% target.

Jack Allen-Reynolds, an economist at Capital Economics, believes that the new Omicron variant will reduce eurozone’s overall inflation to below the ECB’s 92% target by the end of 2022 due to lower oil prices, but could push up the prices of goods by adding to the supply chain logjams created by the pandemic.

Andrew Watt

Andrew Watt, head of unit European economic policy at the Macroeconomic Policy Institute in the Hans-Böckler Foundation, and former senior researcher at the European Trade Union Institute, shared an article on Europe requiring raising resources and revising budgets to not just recover from the pandemic but to face other growing challenges.

The European Union (EU), for instance, is facing other problems apart from the pandemic, such as energy transition, climate crisis, digitalisation, regional divergences, and demographic change. However, many experts believe that the budget is inadequate to address these issues effectively. For instance, the planned reforms of the Common Agricultural Policy are insufficient to meet the European Green Deal goals.

The European recovery plan, which includes the Next Generation EU (NGEU) package of $850bn and the EU budget or the Multiannual Financial Framework (MFF) of $1187bn, is expected to reboot Europe post Covid, to a greener, resilient, and more digitised bloc.

 

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