Covid-19 pandemic: Omicron may slash Q4 global growth by half

Omicron is dealing a blow to the world economy just as the pandemic enters its third year as a drag on growth and driver of inflation.

According to the latest Bloomberg nowcasts, the global economy is expanding just 0.7 per cent in Q4, half the pace of the previous quarter and below the rate of around 1 per cent witnessed right before the crisis.

The euro-area is on pace for a 0.8 per cent expansion in the fourth quarter from the previous three months, which is 0.3 percentage point less than what was projected in November. The US has strengthened slightly and is now registering a 1.2 per cent pace. Among emerging markets, where readings are based on annualised data, China has weakened to a 4.5 per cent rate this quarter, while Brazil has slumped to 0.2 per cent. Russia, India and South Africa also slipped.

“As 2021 draws to an end, the global economic recovery risks being thrown off track by the omicron variant of the coronavirus,” said Tom Orlik, chief economist for Bloomberg Economics. “Particularly Europe looks vulnerable: Recoveries for Germany, France and Italy are increasingly under strain.”

China is tracking a 4.5 per cent year on year expansion, down from 4.9 per cent. Even worse, all the emerging economies slowed in the past month, led by a slide in Brazil. On a monthly basis, the euro-area and Japan are both weaker in December than November, while the US, Canada and the UK strengthened. One upside is that having weakened in the third quarter, the US is accelerating to 4.9 per cent from 2.1 per cent on a quarterly basis, according to the nowcasts. Texas' Harris County on Monday reported its first death related to the Omicron Covid-19 variant, a man who was unvaccinated, the county health department said. However, infections in South Africa, where the variant was first identified, almost halved, though hospital admissions and deaths rose significantly.

Despite the pullback, accelerating inflation continues to cast a shadow over the world economy too.

The US Federal Reserve’s favored measure of inflation is rising 5 per cent this quarter, up from 4.3 per cent In the previous three months. The Bank of England last week raised its key interest rate for the first time in three years, while the Fed paved the way to spend 2022 hiking its main rate from near zero after it ends its asset-purchase program in March.  

Countries across Europe were considering new curbs on movement on Tuesday, with German scientists urging maximum and immediate restrictions on social contacts. Bloomberg’s economists estimate the US and euro-area still have economies smaller than would have been the case without the virus. However, China has already regained its pre-Covid trend.