Home Business False alarm or global bugbear: Goldman’s four scenarios on the effects of the Omicron variant on the economy

False alarm or global bugbear: Goldman’s four scenarios on the effects of the Omicron variant on the economy

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On Friday, the World Health Organization (WHO) designated Omicron as a worrying Covid variant. The emergence of this new unknown has destabilized markets and other risk assets as it could have repercussions on the future economic growth trajectory.

Goldman Sachs economists identified four scenarios for the potential impact on global economic growth, adding that it is too early to predict as it is not yet clear which is more likely to occur.

The four possible scenarios according to Goldman Sachs

It negative scenario sees the Omicron variant transmit faster than its predecessor, the Delta variant. This translates into a slowdown in first quarter global growth to 2% or about 2.5 percentage points below Goldman’s current forecast. For 2022 as a whole, the global economy is still expanding 4.2%, or 0.4 percentage points below current forecasts, while the inflation outlook is “ambiguous”. The serious downside in this case is both the severity of the disease and the immunity against hospitalizations which are substantially worse than in the delta. Global economic growth takes a more substantial blow, while “the impact of inflation is again ambiguous”.

In a second and less likely “seriously negative scenario“, Both the severity of the disease and the immunity against hospitalization are substantially worse than those of the Delta.

In the scenario of the false alarm, Omicron may spread slower than Delta and has no significant effect on global growth and inflation.

Finally, it positive scenario sees Omicron slightly more transmissible, but causes much less severe disease. In this scenario of “normalization” we would go towards a net reduction in the severity of the disease, leaving global growth above the Goldman base. Inflation would probably be lower because the rebalancing of demand and the recovery of goods and jobs accelerate “” The result is that Omicron could have considerable effects on growth, but that the range of medical and therefore economic results remain unusually wide ” point out Goldman economists led by Jan Hatzius.

By virtue of the possibility of a false alarm and high uncertainty as to which scenario will prevail, Goldman is currently inclined not to make Omicron-related changes to growth, inflation and monetary policy forecasts until the likelihood of these scenarios has become a little clearer “. What comes next will likely be dictated by what scientists discover about the new Covid-19 variant, including how resistant it is to vaccines and how much more transmissible than the delta variant, which has raged in recent months without sending economies into recession.

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