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'A temporary interruption': Economy could take slight hit from omicron variant in 2022, experts say – USA TODAY

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Omicron: Biden says new COVID-19 variant ‘not a cause for panic

President Joe Biden urged Americans to get vaccinated as he discussed the new variant omicron.

Associated Press, USA TODAY

The omicron coronavirus variant could have a moderate impact on the U.S. economy next year as it hurts consumer spending and worsens labor shortages and supply chain bottlenecks, intensifying already-high inflation, top economists say.

It’s too early to pinpoint how omicron will affect economic growth because scientists are just starting to assess the toll it could take on global health. It could be a nonfactor or, at worst, nudge the U.S. back into recession

But under one likely middle-ground scenario laid out by some top economists, the strain could be more infectious but not significantly more virulent than the delta variant. And it could lead to fewer government-imposed restrictions on businesses.

If that’s the case, omicron – or another similar variant – would cut economic growth next year by half a percentage point to 4.3% and lead to the creation of several hundred thousand fewer jobs, estimates Mark Zandi, chief economist of Moody’s Analytics.

That would be less than Moody’s projected growth of 5.5% this year – highest since the early 1980s – but still a historically strong figure as the nation continues to dig itself out of the pandemic-induced downturn.

The Dow Jones Industrial Average tumbled 905 points, or 2.5%, on Friday, largely on worries over omicron, but it closed up 236 points Monday before sliding again in mid-morning trading Tuesday.

“The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Federal Reserve Chair Jerome Powell said in prepared testimony he was scheduled to deliver this morning before the Senate Committee on Banking, Housing, and Urban Affairs.

The variant may reduce the chances that the central bank will accelerate the winding down of its bond-buying stimulus to curtail inflation at a mid-December , says Tom Porcelli, chief economist of RBC Capital Markets.

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Two weeks to judge omicron’s impact

Omicron was first discovered in South Africa last week, and Dr. Anthony Fauci, President Joe Biden’s chief medical adviser, said it would take about two weeks to get more definitive information on how easily it will spread, whether it causes more severe illness and how well vaccines protect against it.

But preliminary reports suggest that while omicron spreads more rapidly than delta, it may lead to less severe disease, says Ian Shepherdson, chief economist of Pantheon Macroeconomics.

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South African officials say about 90% of new cases in Gauteng province are caused by omicron, underscoring that the variant is easily transmissible. At the same time, the officials say, existing cases have been mild, though they’ve mostly been among young adults rather than more vulnerable older people, Shepherdson says.

Shepherdson also notes that Pfizer has said its new COVID-19 drug treatment, Paxlovid, is probably effective against a wide range of variants.

“If it is equally effective against Omicron, and production can be ramped up quickly … then Omicron will at worst trigger only a temporary interruption to the economic recovery, and markets will rebound,” Shepherdson wrote in a note to clients.

And even in his likeliest “downside scenario,” Goldman Sachs economist Daan Struyven assumes omicron “evades immunity against hospitalizations only slightly more than delta.”

New lockdowns seem unlikely

Meanwhile, the U.S. has become more adept at dealing with new variants as vaccination rates increase and Americans rely on strategies such as mask wearing and social distancing, rather than lockdowns, to minimize infections. About 80% of Americans over 12 have been fully vaccinated, according to the Centers for Disease Control and Prevention.

“We are broadly assuming that there will be new waves of infections but that each wave will be less disruptive to the health care system and economy than the previous one,” Zandi says.

“New lockdowns are unlikely, except in the worst-case scenario,” Shepherdson says.

Under Zandi’s most likely scenario, omicron or another variant will cause coronavirus infections to peak at 175,000 new cases a day – similar to delta and up from about 75,000 today – but result in fewer hospitalizations and deaths. As a result, he expects it to shave growth by a half percentage point in 2022, compared with the 1.2 percentage point delta-triggered drop in growth this year.

Goldman Sachs’ Struyven similarly estimates global economic growth could be cut by 0.4 percentage points to 4.2% in 2022.

Here’s why the U.S. economy could take a hit:

Consumer spending

Outlays may slow as household once again visit restaurants and stores less frequently and cut back on travel.

Worker shortages

The labor deficit could worsen as employees continue to stay on the sidelines out of fears of catching the variant or to care for children who are distance-learning from home.

Supply chain snags

The bottlenecks, which already have hindered product deliveries, could intensify as it becomes even tougher to hire truck drivers, along with warehouse and dock workers.

Inflation

The worker shortages and supply snarls could keep consumer prices higher. While Zandi expects the annual increase in the consumer price index to fall from a 31-year high of 6.2% in October, a new variant could keep inflation elevated at 3.75% in 2022, compared with 3.6% otherwise.

Struyven says inflation for services like dining out could fall as consumers stay home more but prices for goods like TVs and computers may spike further, leaving “an ambiguous” impact on inflation.

Trade deficit

Because omicron likely would lead to more lockdowns and economic pain in Europe, the U.S. trade deficit could widen as Americans buy more imports while overseas consumers purchase fewer U.S. exports. A bigger trade gap means less growth.

Of course, economists say omicron could lead to a less likely doomsday scenario if it evades the immunity provided by vaccination and prior infection and results in more severe disease.

“Under those conditions, the next few months would be extremely difficult, with anti-COVID measures being reimposed in order to prevent a meltdown of the health care system,” Shepherdson says. “Spending on consumer services would collapse, payrolls would drop sharply, and the federal government would have to pass emergency measures in order to support people who lose their jobs.”

Goldman, however, also laid out an “upside” scenario in which omicron is slightly more transmissible but causes much less severe disease. That could leave more people immune to COVID-19 while benefiting global health and the economy.

Contributing: Maureen Groppe

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Economy

Dollar finds buyers as Fed flags hikes

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The dollar was perched near a five-week high on Thursday, bolstered after Federal Reserve chair Jerome Powell primed investors for U.S. interest rate hikes beginning in March.

Overnight the Fed left policy unchanged but Powell foreshadowed a sustained battle to tame inflation.

He told reporters there was “quite a bit of room to raise interest rates without threatening the labour market” and said the Fed was of a mind to begin lifting rates in March.

The dollar leapt 0.7% against the yen in the wake of the Fed’s decision and Powell’s remarks, its steepest daily jump in more than two months as the prospect of imminent hikes spooked stock markets and drove bond yields higher.

The yen inched a fraction lower to 114.74 per dollar early in the Asia session.

The euro was also sold and fell about 0.5% overnight to a five-week low of $1.1235, holding at that level in Asia.

Sterling and the Australian dollars also dropped with the mood and the New Zealand dollar fell to its lowest since Nov. 2020.

“While communication from Fed members in the lead-up to this meeting meant that the pivot should not have been a surprise, risk appetite shrivelled as Powell’s press conference progressed and the extent of the Fed’s commitment to act in the face of significant inflation pressure became clear,” said ANZ analysts.

The Australian dollar fell close to its 2022 low in the overnight session before recovering a little to $0.7119. The kiwi posted a fifth consecutive daily loss to touch $0.6639. Both Antipodeans steadied in early trade. [AUD/]

Sterling is hovering at $1.3469 as investors await a Bank of England meeting next week and have an eye on the political turmoil enveloping Prime Minister Boris Johnson, who is under pressure after attending parties during lockdowns.

On Thursday, data showed New Zealand inflation a little hotter than forecast and running at a three-decade high.

Chinese industrial profits data is due later in the day, as well as U.S. economic growth and jobless claims figures.

After a battering last week, cryptocurrencies held their ground in the wake of the Fed’s meeting and bitcoin last bought $35,869.

========================================================

Currency bid prices at 0006 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1242 $1.1243 +0.00% -1.11% +1.1242 +1.1236

 

Dollar/Yen

114.7450 114.6800 +0.01% -0.28% +114.7700 +114.6900

 

Euro/Yen

129.00 128.91 +0.07% -1.02% +129.0100 +128.8600

 

Dollar/Swiss

0.9239 0.9243 -0.03% +1.30% +0.9243 +0.9240

 

Sterling/Dollar

1.3465 1.3465 +0.00% -0.44% +1.3467 +1.3465

 

Dollar/Canadian

1.2663 1.2663 +0.02% +0.17% +1.2670 +1.2659

 

Aussie/Dollar

0.7116 0.7115 +0.01% -2.10% +0.7121 +0.7113

 

NZ

Dollar/Dollar 0.6657 0.6654 +0.04% -2.75% +0.6660 +0.6646

 

 

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

 

(Reporting by Tom Westbrook. Editing by Lincoln Feast.)

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Economy

Canadian dollar weakens as BoC foregoes rate hike

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The Canadian dollar fell against its broadly stronger U.S. counterpart on Wednesday as the Bank of Canada surprised some investors by leaving interest rates on hold, offsetting support for the currency from higher oil prices.

The Bank of Canada will soon start hiking interest rates from record lows to combat inflation, Governor Tiff Macklem said, after the central bank left its policy rate at a record low of 0.25%.

Money markets had seen about a 70% chance that the central bank would hike on Wednesday for the first time since October 2018. They now expect lift-off in March.

“The disappointment from the Bank of Canada will quickly fade while the tailwind from oil is significantly growing,” said Adam Button, chief currency analyst at ForexLive.

“The open question is how much of the recent rise is fundamental and how much is political.”

Rising political tensions between Russia and Ukraine have added to concerns about further disruption in an already-tight market for oil, one of Canada’s major exports. U.S. crude oil futures settled 2% higher at $87.35 a barrel.

The Canadian dollar was trading 0.4% lower at 1.2680 to the greenback, or 78.86 U.S. cents, after trading in a range of 1.2560 to 1.2688.

The U.S. dollar rallied against a basket of major currencies and Wall Street gave back its earlier gains as the Federal Reserve signaled that it is likely to raise U.S. interest rates in March and later launch a significant reduction in its asset holdings.

Canadian government bond yields rose across the curve although by much less than U.S. rates. The 10-year was up 2.2 basis points at 1.826%.

Last Wednesday, it touched its highest level in nearly three years at 1.905%.

 

(Reporting by Fergal Smith; Editing by Bernadette Baum and Sandra Maler)

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Poll suggests some Canadians are feeling brighter about the economy, own finances – Coast Reporter

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OTTAWA — A new poll suggests some Canadians are feeling more upbeat about the state of the domestic economy and their own pocketbooks, though not quite as positive as they were before the COVID-19 pandemic.

The annual Leger survey of economic confidence found that nearly two in every five respondents rated the economy as being good or very good, which was up from the same survey last February.

Still, just over half of respondents weren’t as chipper on the state of the economy, with 54 per cent rating it as poor or very poor.

That figure was a drop from the 61 per cent of respondents in last year’s survey, but still above the 36 per cent recorded in February 2020 just before the first wave of the pandemic.

About two-thirds of respondents also showed confidence in their personal finances, a figure that has remained steady through surveys in each of the previous two years.

The poll of 2,399 Canadians who took part in an online panel between Jan. 7 and 12 cannot be given a margin of error because internet panels are not considered to be truly random samples.

Christian Bourque, Leger’s executive vice-president, said the results suggest respondents are more optimistic about the economy than markets and economists who have downshifted expectations for the year. The poll indicates that optimism also extends to their personal finances despite high inflation rates.

“People feel a little bit more upbeat than one would have thought and it’s certainly an increase from what we saw over the past year in terms of overall optimism,” Bourque said.

Downgrading expectations comes on the back of signals from central banks on both sides of the border that their rock-bottom interest rates will go up this year to combat high inflation. There are also supply-chain problems and the spread of the Omicron variant that have created economic headwinds to kick-start 2022.

On Wednesday, the Bank of Canada released its updated outlook for the economy. 

The central bank estimated the economy grew by 4.6 per cent in 2021, down half a percentage point from its previous forecast in October, and now projects growth in real gross domestic product in 2022 at four per cent, down from 4.3 per cent.

The Bank of Canada said part of the downgrade this year is due to the impact of Omicron, hints from governments that spending is easing earlier than expected, and supply chain issues that will have “larger and more broad-based negative implications on economic activity” this year.

Canadians generally are fairly upbeat about the national economy, mixed with some level of prudence for what may come, which Bourque noted played out in regional results.

The biggest boost in optimism for the economy between last year and now came from respondents in Alberta. But the oil-producing province also had the largest percentage of respondents, at 61 per cent, who had the least confidence in the economy.

“For Premier Kenney, it’s another ‘what do I do about this now?'” Bourque said. “Let alone management of the pandemic, now he has to face up to a population that feels that things are not going Alberta’s way.”

Among the top financial worries cited by respondents were the value of their investments, the safety of their savings, and being able to pay their bills. 

Those were the same top issues in the poll done last February, although the results suggest fewer respondents were worried about those issues overall.

This report by The Canadian Press was first published Jan. 26, 2022.

Jordan Press, The Canadian Press

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