Omicron introduces new risks for global economy

Summary

The recently detected Omicron COVID variant has injected new risks into the global economy. In this report, we lay out our base case scenario for the global economy and currency markets amid the early onset of Omicron cases. We also provide a downside scenario should Omicron-related conditions intensify as well as what an upside scenario for the global economy could look like.

Omicron introduces new risks for global economy

In recent days, researchers and scientists identified a new variant of the COVID virus, now officially named the Omicron variant. First, identified in South Africa, the Omicron variant has been detected in 15 countries across Europe, North America, Asia and Africa. Even in Australia, where border control measures have been relatively strict, health officials have found multiple Omicron cases. According to health professionals in the United States, it is possible the Omicron variant has already spread into theU.S. as well but has just yet to be officially detected. As of now, details regarding the transmissibility and severity of Omicron are scarce; however, the World Health Organization (WHO) has already declared the new strain a “variant of concern.” In its official statement, the WHO mentioned that preliminary evidence could suggest an increased risk of reinfection relative to other variants of concern. While additional testing and sequencing still need to be done to make a determination on how transmissible Omicron is, the WHO is asking countries around the world to enhance surveillance of the new strain and coordinate with the international community to improve understanding of the possible impacts from the Omicron variant.

In response to the WHO labeling Omicron a variant of concern, governments around the world have taken action. U.S. President Joe Biden has restricted travel from several Southern African nations, while many other countries have taken a similar approach. The Japanese government has opted for more stringent measures and announced Japan's borders are now closed to all foreign non-resident travelers. In the UK, booster shots have been made available to a greater portion of the population and British officials are also contemplating imposing new restrictions. And in Israel, Israeli officials have delayed the re-opening of the travel corridor with other Middle East countries in an effort to contain the spread of a locally found case and prevent new infections from entering. As of now, we believe these new restrictions are unlikely to have a significant impact on the global economy and, in our view, the global economic recovery remains intact. However, similar to when the Delta variant was first identified, we believe laying out scenarios for how the Omicron variant could impact the global economy and financial markets is a valuable exercise.

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