The Economist: How does omicron affect the global economic recovery?

The last week of November almost resembled the early days of the pandemic again. World stock markets fell as news broke of the emergence of what is now known as the omicron variant, with investors fearing another round of restrictions or people themselves going into lockdown to avoid contagion.

Two months later, the omicron impact is slowly becoming clear. So far it’s largely better than feared. Markets are nervous, but due to the prospect of higher interest rates, rather than COVID-19. Goldman Sachs, a bank, has compiled an index of share prices of European companies, such as airlines and hotels, that thrive when people can and want to be in public spaces. The index, a gauge of virus anxiety, has risen relative to broader stock markets in recent weeks.

High-frequency economic data supports cautious optimism. Nicholas Woloszko The OECD, a group of rich countries, produces a weekly GDP index for 46 upper- and middle-income economies, using data from Google search activity on everything from housing and jobs to economic uncertainty. Adapting their index, which has been a good predictor of official figures, we estimate that the GDP of these countries is 2.5% below its pre-pandemic trend. That’s slightly worse than November, when GDP was 1.6% below trend, but better than a year ago, when output was nearly 5% below trend.

Some factors explain why the worst fears about the economic effects of the variant have not been realized so far. The great uncertainty with omicron relates to whether the bad (higher transmissibility) outweighs the good (lower virulence), and thus whether there is a harmful increase in COVID-19 hospitalizations and deaths. So far, however, few governments apart from China, which is still committed to its zero-COVID strategy, seem to believe that more drastic restrictions on the movement of people are required.

A quantitative measure produced by UBS, a bank, ranks global restrictions from zero to ten and finds that the average global score has risen from 3 to 3.5 in recent weeks. Only one rich country, the Netherlands, moved to a proper lockdown (although this was relaxed on January 26). UBS it also finds that the proportion of international travel routes with COVID-related entry restrictions, at 31% globally, has barely budged since October.

More people also seem happy to take risks. Goldman Sachs produces a confinement index “effective”, which takes into account not only the decrees of governments, but also the choices of the people. So far, its global index has been adjusted to roughly the same level as during the wave delta last summer, even though the number of daily infections is four to five times higher.

Even in places where the rapid spread of COVID-19 it’s a novelty, people continue largely as normal. Cases in San Francisco were slightly above 10% for most of the fall. Although the city is now averaging 2,000 cases a day, gyms and restaurants remain busy. Our global “normality index”, which looks at how people’s behavior has changed relative to pre-COVID norms, fell in recent weeks, but now appears to be recovering.

Today’s case numbers suggest that around 5-10% of Americans currently have COVID-19. Such a high prevalence has created a new difficulty that did not exist with previous variants: a general absence of workers. According to a survey conducted earlier this year by the Census Bureau, 8.8 million Americans were out of work because they were caring for someone with COVID-19 or because they had the disease themselves.

At the end of 2021, 138 National Basketball Association players were unable to work due to COVID-related reasons, although this number has since decreased. In San Francisco, a small but growing number of stores, which had already been struggling with labor shortages, are closing early due to lack of staff.

Measuring the effect of such absences on production is difficult, but it seems likely to be limited and short-lived. To begin with, several factors could offset its impact. Some of the workers who are isolating will be able to work from home. If a restaurant is closed, potential diners may still have other places to visit. And at least for a while, co-workers who aren’t infected can pick up some of the slack. Therefore, the overall resistance could be modest. Research published earlier this month by JPMorgan Chase, another bank, for example, speculated that the absences could reduce Britain’s GDP in January by 0.4%.

Furthermore, with the number of cases falling in both Britain and some US cities, the economic effects of omicron are likely to fade quickly. Prospective surveys also suggest companies aren’t too worried. There are few signs, for example, of a drop in business confidence.

Despite a better-than-expected overall performance, the global economic recovery from the 2020 lockdowns remains uneven. The gap between the best and worst actors is wider than ever. As the South African omicron wave collapsed, GDP rose and is now in line with its pre-crisis trend. The British economy appears to be recovering fairly quickly.

However, other places are still struggling, whether due to slow rollout of booster doses, low population immunity, or just plain bad luck. According to the measure of OECD, the Spanish economy is still about 7% smaller relative to its pre-COVID trend. Ómicron has not done much to derail the global economic recovery. But some places still seem a long way from normal.