The coronavirus Omicron strain could deal a modest blow to the global economy, economists said, noting that the extent of damage will depend on the potency of the new variant itself. Omicron is expected to weaken spending on tourism, restaurants, and shopping, but the damage is not expected to be as severe as that of the Delta variant this summer. Higher vaccination rates and fiscal stimulus are projected to cushion any potential shock from Omicron, the economists added.
At the same time, governments are reluctant to reimpose business-crippling lockdowns and are expected to implement localised restrictions to soften the economic impact. Still, Omicron makes the US inflation outlook more complicated. On Tuesday, Fed Chairman Jerome Powell signalled the central bank would consider accelerating its efforts to wind down easy policies amid elevated inflation. However, Omicron could add uncertainty about prices.
Travel would likely see the most immediate effect from Omicron as governments restrict arrivals of foreigners. The new travel restrictions will likely slash spending at airlines, hotels, restaurants, and museums, economists said. Stay-at-home orders will also discourage offline shopping and prevent employees from going to work, further reducing factories’ ability to make goods to meet demand. If it resulted in worse shortages of workers and goods, prices of certain products and services could rise further.
Economists said the US economic growth could slow due to Omicron this quarter and early next year, but it is unlikely to contract. Oxford Economics suggests it could lower its 2022 global GDP growth projection to 4.2%, down slightly from its previous estimate of 4.5%. However, some other economists said it is too early to tell the scale of Omicron’s potential blow. Omicron’s impact on the economy will depend on how many infections and deaths it can cause and how consumers, businesses, and governments will react. Epidemiologists are still working to determine how transmissible and lethal Omicron is and how far it has spread.
