Omicron Could Lead the Global Economy to Stagflation Experts Warn.

The emergence of a new Coronavirus variant has been all over the news for the past couple of weeks. As it has more than 30 different mutations, medical experts are concerned about the effectiveness of vaccines, as well as how Omicron could impact public health.

Preliminary studies show mixed results, since vaccines are deemed effective, but at the same time, the new variant is four times more transmissible when compared to the Delta strain. Until more data is available, the big question remains around its impact on the global economy.

Omicron variant and the global economy

Persistent bottlenecks and high inflation

International commerce has returned to normal levels, but supply bottlenecks are expected to persist into 2022. Companies are reliant on imports from Southeast Asia, which is where a large share of factory activity is located.

Combined with fiscal and monetary interventions, supply issues led to rampant inflation all around the world and Omicron could exacerbate that trend. If it can spread more easily, that might prompt policymakers to put restrictions back into place. Producing enough goods and services to meet global demands will become even harder.

At the same time, economic activity is already showing signs of peaking, which means it won’t take long until financial government support is needed again. All of these can support elevated inflation for an extended period, which is something consumers are not looking forward to.

China and its zero COVID-19 tolerance

Asset price volatility has increased on the back of Omicron-related news and after a brief slump, sentiment is gradually recovering. People involved via various trading platforms like easyMarkets and others have been buying the dip, a policy which thus far has managed to prove itself effective.

This is a long-term process and the ramifications of a new variant could be felt over a couple of months at least. Another important concern is China, a country that pledged to show no tolerance when it comes to new COVID-19 cases. That’s a goal hard to achieve when dealing with a transmissible strain.

Since a significant share of the factory activity is in China, new measures to curb the spread of the virus could put renewed pressure on productivity. The Christmas and New Year Holidays are approaching in the West, at a time when several developed countries are coping with rising COVID cases. Until more data is available, it’s difficult to predict whether or not Omicron will further support this worrying trend.

Encouraging news emerging?

Not all news related to Omicron is negative. Pfizer’s CEO recently stated that the company’s vaccine remains effective against the new variant, especially if people also get their booster shot. More testing is now pending, but this data is certainly raising some short-term confidence.

Despite higher transmissibility, Omicron-related symptoms seem to be mild in general, similar to those of a common cold. At least that’s what data from South Africa, the place where the strain was first discovered, is currently showing. Fewer people infected need intensive care, which is why it might be possible to achieve herd immunity even without full vaccination.

IPS, No PR, Wire