How does Omicron affect the global recovery?

 How does Omicron affect the global recovery?

The data show that the impact of the Omicron mutation on the global economic recovery may be short-lived and not as bad as people think.

By the end of November 2021, the world began to feel a repeat of the early days of the Covid-19 pandemic. Global stock markets fell as news of the Omicron mutation was announced. Investors fear another round of travel restrictions or people will respond by shutting themselves down.

Two months later, the effects of Omicron were gradually being noticed. But so far, much of the information is better than scary. Stock markets still have their volatile times, but because of the prospect of higher interest rates, not because of Covid-19. According to Goldman Sachs, stock price indexes of European companies, such as airlines and hotels, have thrived when people are able and willing to be present in public spaces.

Some other data also reflects cautiously optimistic signals. Nicolas Woloszko, OECD Economist, releases a weekly GDP index for 46 middle- and high-income economies. The index uses data from Google searches on everything from housing and employment to economic uncertainty.

This weekly GDP reading - which is a good predictor of official numbers - estimates GDP in the OECD group to be about 2.5% lower than it was before the pandemic. The latest results are slightly worse than in November, when the index recorded 1.6% lower than before the epidemic. However, it was better than a year ago, when yields were nearly 5% lower.

Weekly GDP index movements (unit: %). Graphics: The Economist

Weekly GDP index movements (unit: %). Graphics: The Economist

There are a number of factors that explain the worst fears about the economic impact of the Omicron mutation that have so far not ended. For example, there is still skepticism about the uncertainty regarding whether the bad news (i.e. Omicron's higher transmissibility) outweighs the good news (lower virulence) of it.

So, so far, some governments excluding China - which still follows the Zero Covid strategy - seem to believe that more drastic restrictions on the movement of people are needed. UBS bank ranks global restrictions from 0 to 10. As a result, they found that the global average score has increased slightly from 3 to 3.5 in recent weeks.

Only one rich country, the Netherlands, has moved to a state of restrictions, which eased on January 26. But UBS also found that the share of international travel routes with Covid-related entry restrictions, at 31% globally, has remained mostly unchanged since last October.

Goldman Sachs created a blockade index that takes into account not only the government's mandatory blockade regulations but also people's voluntary distancing options. So far, the global index is about the same as last summer's Delta variant outbreak, although the number of daily infections is 4-5 times higher.

Even in places where the rapid spread of Covid-19 is mutating, people continue to live as usual. The Economist's global "normality" - which looks at how people's behavior has changed from previous norms - has fallen in recent weeks. In fact, where new infections in San Francisco used to be in double digits for most of the fall, there are now about 2,000 new cases a day. However, the gyms and restaurants are always busy.

Not causing many activities to stall, but Omicron still causes certain obstacles. The number of new daily infections shows that about 5-10% of Americans now have Covid-19. Such a high ratio presents a new challenge that was not present in the previous variants. There is a shortage of workers.

According to a survey conducted at the beginning of the year by the Census Bureau, 8.8 million Americans are not working because they are caring for someone with Covid-19 or because they are sick themselves. In San Francisco, several small stores, already struggling with labor shortages, are closing early because of staff shortages.

Measuring the effect of such an absence on economic output is difficult, but it will also be limited and short-lived. Several factors can offset their impact. For example, some quarantined workers can still work hard from home. If a restaurant closes, diners can still have other locations.