BIZweek n°371 3 déc 2021
BIZweek n°371 3 déc 2021
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  • Parution : n°371 de 3 déc 2021

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 10

  • Taille du fichier PDF : 2,2 Mo

  • Dans ce numéro : le nouveau variant covid-19 omicron.

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VENDREDI 03 DÉCEMBRE 2021 BIZWEEK ÉDITION 371 For now, a resurgence of the pandemic remains a tail risk. In theupcoming December 6 forecast, Oxford Economics envisage lowering next year’s world GDP forecast by a considerably more modest 0.3ppts or so. This is based on Omicron inflicting a similar scale of disruption at the turn of the year to that seen in Q3, and most of the economic weakness being caughtup in Q2 and Q3 2022. How has the baseline view of the world economy shifted ? LA TOUR GLOBAL RESEARCH Will Omicron derail the global recovery ? It’s too soon to judge the health implications, let alone the economic effects, of the emerging Omicron Covid variant. But its rapid spread around the globe and the speedy re-imposition of restrictions by governments underscores the bumpiness and unpredictability of the path to normalcy. For now, there is no definitive evidence on whether Omicron is more transmissible, causes more or less severe symptoms than Delta, or affects vaccine efficacy. If Omicron became the dominant strait and proves to cause less severe health outcomes than Delta, any near-termnegative effects on the recovery could be quickly reversed and it could even reduce the scale of economic scarring in the medium term. If Omicron becomes the dominant strain, causes more serious side effects, and reduces vaccine efficacy, then the existing downside Covid scenario becomes more plausible as a worstcase. In this scenario, global GDP growth next year could slow to 2.3%, well below existing baseline forecast of 4.5% For now, information on the health implications of the new Omicron Covid variant is scarce, making the economic repercussions highly unpredictable. At the time of writing, around 12 economies have reported cases of Omicron, but the number of countries where it is present is likely to be substantially higher. In South Africa it’s estimated that Omicron has accounted for around 70% of total Covid cases over the past four weeks. Based on this, it seems possible that Omicron may take over from Delta as the dominant strain globally. Nonetheless, the WHO have cautioned that there is not yet sufficient evidence that Omicron is more transmissible. The view that this strain causes less severe symptoms than other variants is speculative. Some anecdotal evidence from South Africa suggests that those infected with the Omicron strain have had milder symptoms than those associated with prior variants, but the initial infections were mainly among university students. So we caution against drawing firmconclusions from a smalland potentially unrepresentative sample. The other key uncertainty is the degree to which it reduces the efficacy of existing vaccines. While some of those infected have reportedly been fully vaccinated, it’s too soon to judge whether this is indicative of lower vaccine efficacy. In addition, even if vaccine efficacy is reduced, it’s unclear whether some will offer better protection than others. The main repercussion that’s clear at this stage is that governments have already reacted to the Omicron news by re-imposing restrictions, particularly on foreign travel. More generally, the latest development underscores that the path to normalcy will continue to be bumpy and uncertain. What is a plausible best-case scenario ? In a best-case scenario, Omicron could turn out to be a blessing in disguise if the efficacy of vaccines against serious health outcomes remains high and the symptoms of those that are infected are generally less serious. In such a scenario, the spread of Omicron could help to speedup the transition back towards normalcy, and any neartermweaknessin economic activity due to renewed restrictions might be quickly caughtup early next year. The emergence of a less serious Covid strain and the rapid deployment of modified vaccines (Moderna have already suggested that by early 2022 a reformulated vaccine to tackle Omicron could be available « in large quantities ») might reassure households and firms that although Covid is set to linger, its economic impact will lessen over time. And a plausible worst-case scenario ? Although far from inevitable, we can’t discount the possibility that Omicron will have greater transmissibility, similar or worse symptoms to Delta, and is more resistant to vaccines. So, what might be the plausible economic consequences of a more worrisome variant ? In the current Covid downside scenario in which new Covid variants trigger a protracted period of restrictions and lengthens the disruption to global supply chains, world GDP growth slows to 2.3% in 2022 and financial markets weaken. In this scenario, advanced economies are particularly hard hit with US and eurozone GDP growth in 2022 around 2ppts below 4 Cont’d on page 5
VENDREDI 03 DÉCEMBRE 2021 BIZWEEK ÉDITION 371 In the current Covid downside scenario in which new Covid variants trigger a protracted period of restrictions and lengthens the disruption to global supply chains, world GDP growth slows to 2.3% in 2022 and financial markets weaken. In this scenario, advanced economies are particularly hard hit with US and eurozone GDP growth in 2022 around 2ppts below current baseline forecasts of 4.5% and 4.2%, respectively current baseline forecasts of 4.5% and 4.2%, respectively. How to revise the baseline ? It will be a few weeks before we understand what the health implications and by extension the potential economic effects of Omicron will be. But against a backdrop of rising Covid cases globally and renewed restrictions in some economies to limit the spread, Oxford Economics plan to reduce its Q4 2021 and Q1 2022 global GDP growth forecasts in the next GDP release, scheduled December 6. They envisage quarter-on-quarter global GDP growth in Q1 being around 75%-80% of the current forecast as a result of tighter restrictions, further supply-chain disruption, and more cautious behaviour by households and firms. It is assumedthat this growth shortfall would be largely madeup in Q2 and Q3 2022. Based on the current relationship with lockdown stringency, a downward revision of that magnitude would be consistent with restrictions ratchetingup to levels similar to those seen globally from May to September this year. This would lower calendar year global growth to 4.2% to 4.3% from the 4.5% expected currently. World  : New Covid cases Thousands (7-dayrn ceing average) £130 Z.00 700 - 600- 500 - 400 300 200 100 - World  : real GDP scenarios Index (04 2019=100) 120 - 115 110 105 100 95 90 85 80 Mar 20 Jun 20 Sep 20 Dec 20 Mar 21 Jorn 21 Sep 21 Source lad EcononicsiHaver Anelytics LA TOUR —Long Covid —Baseline Forecast 75 2010 2012 2014 2016 2018 2020 2022 2024 2026 Source Oxford Econornicsillaver Analytics Will greater restrictions prove inflationary or disinflationary ? In the nearer term, it seems likely that governments will tighten measures that restrict international travel or make it more inconvenient and expensive, which may help to push down oil prices and thus energy price inflation globally over the coming months. This would support the view that global CPI inflation will ease sharply over the course of 2022. But greater restrictions, particularly in China and other Asia-Pacific economies that are likely to continue to pursue zero-Covid policies, may add to supply chain disruption in the short termand slow the speed at which bottlenecks are resolved. In addition, tighter restrictions are also likely to result in a more gradual transition of spending from goods back to services. These two factors combined would likely result in goods price inflation over the course of 2022 remaining higher than current baseline envisages. The impact on core inflation willalso depend on the extent to which an Omicron wave affects demand. While demand effects outweighed supply-side effects during the global lockdown, supply effects typically dominated demand effects in subsequent shutdowns. On balance, the latter episodes are likely to be more representative than the former when it comes to future inflation trends unless we endup in the worst-case scenario. In that case, demand effects might dominate. Beyond 2022 though, the impact on inflation is likely to be governed by two factors. First is the extent to which Omicron enhances or diminished labour bargaining power. For now, we still see the risk of sustained high wage growth as limited. Second is the extent to which policymakers step in to protect demand. Global new Covid cases have been oscillating in a band between 400k and 700k since June 2021. However, if the Omicron variant does prove to be more transmissible, global cases could start to rise more definitively from here. How could policy makers respond ? If the Omicron variant endsup having a significant impact on the economy, then governments and central banks would likely focus their response on the demand impacts rather than the more ambiguous inflation impact. Governments would be most concerned with offsetting the negative impact on demand for those sectors and low-income consumers already hard hit by the pandemic. However, with public finances markedly worse than at theonset of the pandemic in March 2020, the scope of any new policy measures would likely be an order of magnitude smaller this time around. This is especially true in emerging markets where a less favourable global liquidity environment would further dampen any appetite to stretch public finances again. The consequence for policy makers would be to focus on well-targeted measures. In this environment central banks would likely be far more dovish. It’s a stretch to imagine that advanced economy central banks would look to tighten policy at the same time as governments were rampingup restrictions on activity. Although the consequences for inflation would arguably be no better, the uncertainty around the demand outlook should give central banks the cover to de-emphasise the current inflation overshoot in favour of a « wait and see » approach on the demand impact. Market pricing of policy rates has already shifted markedly lower (closer to current baseline). But given a further skew of downside risks to the demand outlook that the Omicron variant could prompt, it would not be a surprise to see market pricing shift out further in the coming weeks. [Source  : Oxford Economics – 29 November 2021] 5

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