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 |
