The World Health Organization (WHO) designated Omicron a variant of concern on
26 November due to the number of mutations that can affect how it spreads and
its health effects. On 28 November the WHO said it was not yet clear whether
Omicron is more transmissible than other variants, including Delta. Although
there is 'currently no information to suggest' Omicron's symptoms are worse,
understanding its severity 'will take days to several weeks'.
The possibility of a new variant that requires significant non-pharmaceutical
interventions (NPIs), such as highly stringent nationwide lockdowns, to contain
transmission is a continuing risk to the global economy. But the experience of
most large countries suggests each successive wave of coronavirus infections
has diminishing growth effects as economies adapt, for example, through changes
in working and consumption patterns.
Moreover, vaccination programmes and improved scientific understanding of the
virus reduced reliance on NPIs compared with the beginning of the pandemic.
Meanwhile the political bar to reintroducing full lockdowns has risen.
These factors make a repeat of 1H20'' unprecedented global GDP contraction
unlikely. Nevertheless, the return to pre-pandemic levels of activity in the
most exposed sectors, such as tourism and international travel, will be
disrupted, and the shift back to services from goods consumption may also slow.
Broader risks to growth have risen where restrictions on economic activity are
likely to be more extensive.
In this respect, vaccination rates could be critical as evidence from Europe
and the US shows vaccinations weaken the link between coronavirus infection and
hospitalization rates. Higher vaccination rates could; therefore, reduce the
risk that public health systems are over-burdened, which would necessitate
harsher NPIs. The WHO said it is 'working with technical partners to understand
the potential impact' of Omicron on vaccine effectiveness.
The scale of the policy support provided in response to the pandemic has
limited supply-side scarring from the pandemic in
developed markets, relative to our initial expectations. However, recent
increases in inflation will complicate any policy response to Omicron, which
could have an inflationary effect if new lockdowns or voluntary social
distancing constrain labour supply recoveries or exacerbate global supply-chain
shortages and bottlenecks. Hence, we believe central banks could be wary of
delaying the normalization of monetary policy settings in response.