Omicron’s spread: How severely can it impact global recovery?

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Omicron’s spread: How severely can it impact global recovery?

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 Omicron’s spread: How severely can it impact global recovery?
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Highlights 

  • The new variant of coronavirus, Omicron, has caused a lot of fear and concern amongst investors worldwide.
  • Many countries have started to put a travel ban on flights originating from African countries to curb the spread of new variants.

The new variant of coronavirus, Omicron, has caused a lot of fear and anxiety amongst investors worldwide. As per the preliminary reports, the new variant is six times more likely to spread than the Delta variant, which had caused the lockdown in many countries previously. The Omicron variant that first originated in South Africa has seen cases from over 12 countries.

The major stock market across the globe ended in negative territory on Friday. Investors and traders decided to sell-off, fearing new restrictions across different countries could impact the global economic recovery and conversely hinder the growth prospects.

Image description: Market plunge

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Let us look at some of the scenarios that may play out in upcoming days and impact the global economic growth:

Travel Restriction

Many countries have started to put a travel ban on flights originating from African countries to curb the spread of new variants. The UK government has added ten countries, including South Africa, Botswana, and others, to the red list and has urged the UK resident to travel only if essential to these countries. In addition, the government has also made the 10-day quarantine rule compulsory for all returning UK and Irish residents into the country from these regions. The travel restrictions just before the start of major festivals and holiday season across different economies will hamper consumer and business confidence.

Impact of supply chain and business growth

In the worst-case scenario, if the cases keep increasing rapidly, the government may have to implement a lockdown which may adversely impact the global supply chain, already under stress after the previous lockdown. Due to supply chain disruption, demand recovery for businesses has been adversely impacted and has triggered inflation in many economies.

The spread of stagflation

Many countries are still recovering from the previous Covid-19 shock and continue to witness poor demand and high inflation like scenarios. The spread of Omicron may not allow the central banks to tighten the monetary policy to curb inflation, leading to the spread of stagflation economic conditions (High Inflation and Low Growth) in many economies.

Researchers and scientists are conducting different studies to better understand the new variant of coronavirus, including its transmission rate and the chance of evading the vaccines. Moreover, some experts estimate that the economy may not be hit severely this time around as businesses and households have adopted to previous restrictions and lockdowns. Also, many countries are better prepared to put restrictions with minor damage to growth.

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