Could Omicron Worsen Labour Shortage, Slows Economy, Boost Inflation?

The majority of grocery stores have had trouble stocking up during the pandemic due to shortages of supplies and labour. Omicron is adding to the present trouble.

Canceled flights, bare shelves at grocery stores, reduced bus schedules and schools closed due to staff shortages are only a few examples.

The rapid spread of omicron is posing a threat to sharply slow the US economy and increase already-high inflation in the first quarter of 2022. Many companies are experiencing greater worker absenteeism, particularly in viral hot spots with higher infection rates such as the Northeastern states.

Rising omicron cases are everywhere round the globe. Slower growth in China is anticipated at around 5%. If the COVID-forecasting models are correct, Omicron will peak in most places in Europe and the United States as soon as mid-January, and then the case numbers will improve, slowly, then dramatically.

Omicron was fast and furious in its growth and will be fast, hopefully not furious, but very fast also in its decline. It should be receding sooner than other waves that we experienced in the past.

Of course, what all market participants are hoping for does not mean Omicron will not do a fair bit of damage, practically in the four following areas:

Growth
As for growth, prospects for 2022 looked stellar as recently as a few months ago. In October, the International Monetary Fund penciled in global growth at 4.9% for this year, with the US and China outperforming. And then Omicron hit in late November, sending economists back to their calculations.

On Wall Street, Goldman Sachs cut its US economic growth forecast from 4.2% to 3.8%. Would you like to ask why? Yes, it Omicron. After the new year, a steady trickle of growth-downgrades became a torrent. The highly contagious variant would shave as much as 1% off the Eurozone and United Kingdom GDP growth rates. The worst-case scenario would be one in which Omicron caused.
 
Supply Chains
Year one of the COVID pandemic was marked by a collapse in demand as lockdowns kept consumers at home. Last year, we had almost the opposite effect: a consumer flush with cash and anxious to spend. That triggered a surge in demand that factories could not possibly meet.

The big hope was that global supply chains would catch up to this great imbalance in the first half of 2022, if not by the end of Q1.

Stock Markets
With Omicron pummeling the world’s most advanced economies last week, the stock markets from Frankfurt to New York tanked. The benchmark S&P 500 limped out of the week on a four-day losing streak, its worst rout since September, and the tech-heavy Nasdaq had its worst one-week decline since February.

It wasn’t just Omicron weighing on investors, but the rising case numbers added to the risk-off mood hanging over global markets, persuading investors to sell out of their high-priced holdings in exchange for safe havens.

Labour Market
Friday’s jobs report carried an unsettling warning: Don’t pay any heed to the headline number of 3.9% unemployment. That looks really strong on the surface, but it masks bigger issues elsewhere. If employers thought the labour market was tight at the end of 2021, try finding talent during the current spike in Omicron cases.

Pfizer Carries Some Hope

Pfizer CEO Albert Bourla on Monday said a vaccine that targets the omicron variant of Covid will be ready in March, and the company’s already begun manufacturing the doses.“

“We are already starting manufacturing some of these quantities at risk”, Bourla said. He added that the vaccine will also target the other variants that are circulating. He said it is still not clear whether or not an omicron vaccine is needed or how it would be used, but Pfizer will have some doses ready since some countries want it ready as soon as possible.

“The hope is that we will achieve something that will have way, way better protection particularly against infections, because the protection against the hospitalizations and the severe disease — it is reasonable right now, with the current vaccines as long as you are having let’s say the third dose,” Bourla noted.