‘No way to know how bad it will get’: Omicron threatens fragile global economic recovery

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This week, Marisha Wallace finally had to admit that her planned five-day ski holiday in Switzerland in mid-December was not salvageable: The Swiss government’s sudden decision to impose a 10-day quarantine on some international travellers meant she wouldn’t be able to leave her hotel or return home to London on her scheduled flight.

“It’s the way of the world right now,” said Wallace, an actor and a singer. “You can’t plan anymore.”

Actor and singer Marisha Wallace has seen her travel plans upended by the Omicron variant. Credit:Joshua Bright/ The New York times

That provisional state, amplified across the world, has left the still-fragile economy in a state of suspense as spiking coronavirus infections and the new Omicron variant have popped up around the globe.

“There’s no way to know how bad it will get,” said Ángel Talavera, head of European economics at Oxford Economics.

The forecasting firm has sketched out three possible scenarios, including one that predicts no discernible effect on economic growth and one severe enough to slash next year’s in half. It will take several weeks before there is more clarity, Oxford concluded.

The current round of restrictions has already reduced travel and dampened consumer confidence. A virulent, vaccine-resistant strain could send the economy into a tailspin again, while a mild one could leave health care systems unburdened and allow the recovery to get back on track.

A report released Wednesday by the Organisation for Economic Cooperation and Development showed that although growth has been uneven, the world economy this year bounced back more quickly and strongly than had been anticipated. The report, compiled largely before the latest coronavirus news, nevertheless warned that growth was projected to slow: in the eurozone, to 4.3 per cent next year from 5.2 per cent in 2021; and in the United States, to 3.7 per cent in 2022 from 5.6 per cent.

The organisation characterised its outlook as “cautiously optimistic.” But it reiterated how much economic fortunes are inextricably tied to the coronavirus: “The economic policy priority is to get people vaccinated,” the report concluded.

Indeed, Omicron’s threat to the recovery is just the latest in a series of zigzags that the world economy has endured since the coronavirus began its march across continents last year. Hopes that an ebbing pandemic would permit daily life and commerce to return to normal have been repeatedly frustrated by the virus.

Even before this latest variant was discovered, a fourth wave of infections transformed Europe into a COVID-19 hot spot and prompted new restrictions like lockdowns in the Netherlands and Austria.

During earlier outbreaks, trillions in government assistance helped quickly resuscitate the struggling US and European economies. It also brought some unexpected side effects. Combined with pent-up demand, that support helped produce a shortage of labor and materials and rising inflation.

Given how much debt was racked up in the past 18 months, such aid is unlikely to recur even with a sharp downturn — and neither are wholesale closures. Vaccines provide some protection, and many people say they are unwilling to go back into hibernation.

People and businesses alike have shifted into a wait-and-see mode. “A lot of things do seem like they are on hold, like labour market or overall consumption decisions,” said Nick Bunker, director of economic research for the job site Indeed.

How that will affect unemployment levels and inflation rates is unclear. Jerome Powell, the Federal Reserve chair, indicated Tuesday that concern about stubborn inflation was growing. The OECD also warned that inflation could be higher and last longer than originally anticipated.

Omicron’s appearance just adds to the uncertainty, said Laurence Boone, the organisation’s chief economist.

Governments around the world are in wait-and-see mode as the Omicron variant rattles economies and markets.Credit:AP

“If it’s something we can cope with, like the virus we have so far, then it may prolong disruptions of the supply chain and inflation could take longer to sort out,” she said. But if the new variant causes wider shutdowns and plunging confidence, Boone said, it could reduce the spending binge and dampen rising prices.

In recent days, governments have reacted with a confusing hodgepodge of stern warnings, travel bans, mask mandates and testing rules that further cloud the economic outlook. That patchwork response combined with people’s varying tolerance for risk means that, at least in the short term, the virus’s latest swerves will have a vastly different effect depending on where you are and what you do.

In France, Luna Park, an annual one-month amusement fair held in the southern city of Nice and slated to open this weekend, was called off after the government suddenly requisitioned the massive warehouse where roller coasters, shooting galleries and merry-go-rounds were being set up in order to convert the space to an emergency vaccination centre.

“Today I find myself trying to save my company, and I’m not sure that I can,” said Serge Paillon, the park’s owner. He feared he would face huge losses, including 500,000 euros ($797,000) he had already invested in the event, as well as refunds for tickets that had been on sale for several months.

Paillon furloughed 20 employees. An additional 200 festival workers who were coming from around the country to manage the 60 games and rides were told to stay home.

“For a year and a half, it was already a disaster,” Paillon said. “And now it’s starting again.”

Israel’s decision Saturday to shut its borders to all foreign tourists for two weeks is likely to reduce the number of tourists in Israel and the occupied territories this month by up to 40,000, or nearly 60 per cent of what was expected, according to a government estimate.

Wiatt F. Bowers, an urban planner, had planned to leave Jacksonville, Florida, for Tel Aviv on Wednesday but had to cancel — the fifth time in 18 months that he had to scrap a planned trip to Israel. He will rebook but doesn’t know when.

Reluctance to travel, though, could mean an upswing in other sectors if the new variant is not as harmful as people fear. Jessica Moulton, a senior partner at McKinsey & Co. in London, said previous spending patterns during the pandemic showed that some money people would otherwise use for travel would instead be spent on dining.

Omicron’s threat to the recovery is just the latest in a series of zigzags that the world economy has endured since the coronavirus began its march across continents last year. Hopes that an ebbing pandemic would permit daily life and commerce to return to normal have been repeatedly frustrated by the virus.

She estimated that the roughly $US40 billion ($56.4 billion) that British consumers saved on travel last summer was used for shopping and eating out.

At the moment, Moulton said, “to the extent that Omicron decreases travel, which will happen as we head into Christmas, that will benefit restaurants.”

In Switzerland, where travellers from Britain and 22 other countries must now quarantine, the effect of the policy change on hotels was immediate.

“The majority of travellers from England — between 80 to 90 per cent — have already cancelled,” said Andreas Züllig, head of HotellerieSuisse, the Swiss hotel association.

Wallace, who cancelled her trip to the Cambrian Hotel in Adelboden, was one of several people who changed their reservations at the hotel after the Swiss government made its announcement Friday, just one week before the slopes open.

“This obviously has an impact on our very important winter and Christmas business,” said Anke Lock, Cambrian’s manager, who estimated that 20 per cent of the hotel’s December bookings were at risk.

For now, though, most guests are watching and waiting, Lock said: “We’ve changed the bookings from guaranteed to tentative.”

Extreme uncertainty about the economy may turn out to be the only certainty.

This article originally appeared in The New York Times

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