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Omicron ends hopes of world starting 2022 with economy recovery

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JAPAN: The omicron variant is dealing a blow to optimistic hopes that the world economy would enter 2022 on a firmer footing, potentially undermining plans by policy makers to focus on inflation rather than weak demand.

The imposition of travel restrictions will shake consumer and corporate confidence, likely limiting activity in some places just as the holiday season gets underway in many economies. Japan will effectively ban the entry of all foreign visitors as part of its plan to curb the virus spread, broadcaster NTV reported.

Markets moved swiftly to price in an economic blow. Expectations for interest-rate increases over the coming year dropped by at least 10 basis points on Friday for the central banks of the US, UK and Australia.

What comes next will be dictated by what scientists discover about the new COVID-19 variant, including how resistant it is to vaccines and how more transmissible it is than the delta variant which raged in recent months without sending economies back toward recessions.

The worst case scenario would be if the mutation necessitates a return to growth-crippling lockdowns, which would threaten already strained supply chains and damage recovering demand. That would reignite fears of a stagflationary mix of faster inflation and slower growth.

A benign outcome is that the mutation doesn’t prove as threatening as initially feared. But its emergence serves as a reminder that the pandemic will remain a threat for the global economy, potentially for years to come. “Businesses and households have adapted to restrictions and lockdowns and so the blows may not be as severe this time around,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc.

“That would mean localised lockdowns as outbreaks emerge, tighter restrictions on regional travel and a greater likelihood of port shutdowns,” he said. “China has proved adept at managing outbreaks, but the long-run economic costs will mount if highly-transmissible strains are endemic globally.”

If the variant spreads “it could slow the healthy momentum in the economy” of the U.S., according to Mickey Levy, chief economist for the U.S. and Asia at Berenberg Capital Markets.

Before Omicron emerged, some economists had tipped a transition in demand away from durable goods and toward services such as leisure, travel and tourism. But that switch may now be delayed — denting prospects for a global recovery that is already uneven.


Tuesday, November 30, 2021 – 01:00

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