PARIS — After limping its way back from the COVID pandemic last year, the global economic recovery has been rattled by the Omicron variant’s rapid rise.
The travel industry has been thrown into disarray again, workers have been forced to isolate at home and governments are facing a stark choice between imposing restrictions or letting the economy be.
Could the highly contagious Omicron variant have a severe impact on the recovery? Or will its mild symptoms keep the economy from sinking again?
How bad a hit on growth?
The head of the International Monetary Fund, Kristalina Georgieva, warned last month that global economic growth forecasts may have to be slashed following the emergence of Omicron.
The IMF has previously banked on growth of 5.9 percent for 2021 and 4.9 percent this year, but it could now revise its estimates later this month.
Get The Times of Israel’s Daily Edition by email and never miss our top stories
To soften the blow on the economy, US health authorities have cut the isolation period for asymptomatic cases by half to five days.
Mark Zandi, chief economist at Moody’s, told AFP he expects US growth of 2.2 percent in the first quarter, more than half lower than a previous estimate of 5.2 percent.
“Omicron is already doing economic damage, as is clear from weaker credit card spending, a decline in restaurant bookings, air flight cancelations, and many schools going back to online learning,” Zandi said.
Advertisement
Passengers queue up to check in at the counter for Delta Airlines Monday, Jan. 3, 2022, in the main terminal of Denver International Airport in Denver. (AP Photo/David Zalubowski)
“However, I do expect Omicron to pass through quickly and for growth to rebound in the second quarter, and growth for the year to be unaffected,” he added.
“Broadly, I think each wave of the virus is doing less damage to the healthcare system and economy than the previous wave.”
In the eurozone, tighter restrictions, consumer caution and absenteeism will reduce economic activity in the next few weeks, but the economy will rebound in February, according to Andrew Kenningham, chief Europe economist at Capital Economics.
Countries with lower vaccination rates, which are mainly developing economies, face greater uncertainty, and a zero-COVID policy in China could put a brake on growth in the world’s second-biggest economy as it locks down entire cities.
Will tourism suffer?
The travel industry was looking forward to a rebound in 2022 after it was devastated by border closures and lockdowns.
But the emergence of Omicron during the key winter holiday season caused thousands of flight cancellations, cruises to be forced to dock and fewer hotel bookings.
Advertisement
Investors, however, have been optimistic, as shares of airline and cruise companies have risen in recent weeks.
A man wearing a protective mask looks at an electronic stock board showing Japan’s Nikkei 225 and Shanghai indexes at a securities firm with a traditional New Year decoration at it entrance Wednesday, Dec. 29, 2021, in Tokyo. (AP Photo/Eugene Hoshiko)
“The markets seemed to be looking at the post-Omicron period,” said Alexandre Baradez, an analyst at IG France.
Will inflation worsen?
The economic recovery has had an adverse side effect: Inflation that has soared to decades-high levels in the United States and Europe as energy prices soared and rising demand faced supply shortages.
Central banks have insisted that high inflation is only temporary and prices will eventually fall, but it has hurt consumers and businesses.
Could it get worse?
“Little is certain about Omicron’s impact on consumer demand, but people who stay at home because of the variant are more likely to spend their money on retail goods rather than services like dining out or in-person entertainment,” said Jack Kleinhenz, chief economist at the US National Retail Federation.
“That would put further pressure on inflation since supply chains are already overloaded across the globe,” he said.
Supply chain bottlenecks caused shortages of a slew of materials last year, driving up the prices of many products. Higher demand for products on goods on supply could further fuel price increases.
The Federal Reserve rattled markets this week as minutes from its December meeting showed that the US central bank was ready to tighten monetary policy more aggressively to tame inflation.
Advertisement
Elsewhere, inflation is eroding purchasing power after running into double digits in Brazil and Nigeria.
In Britain, the British Chambers of Commerce said 58 percent of firms expect their prices to increase in the next three months.
End of stimulus?
Governments deployed massive stimulus programs in 2020 to save their economies, piling up $226 trillion of debt, according to the IMF.
Furlough schemes to keep people employed “made sense” when there was so much uncertainty and entire industries shut down, said Niclas Poitiers, research fellow at Bruegel, a Brussels-based think tank.
“I don’t see yet the necessity for massive funds to the economy,” Poitiers said.
The United States and Europe are instead investing in structural programs, such as President Joe Biden’s $1.75 trillion “Build Back Better” social and climate spending plan.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
