Three Omicron scenarios for the global economy – ING

Just when we thought we were through the worst, along comes the Omicron variant. Nobody knows if the new variant will be more transmissible or deal a significant blow to the current vaccines. These are the best and worst outcomes for the global economy, in the view of economists at ING.

Optimistic Omicron

“Omicron proves to be a ‘storm in a teacup’. The Federal Reserve accelerates its taper in December and gears up for three rate hikes in 2022. Sporadic Delta lockdowns slow eurozone growth over Christmas and early into the new year, but the situation improves through the spring. The European Central Bank begins to taper amid growing wariness about inflation. The Bank of England kicks off its rate hike cycle this month.”

Omicron ‘difficult’ but not a ‘disaster’

“This is loosely our base case. Omicron doesn’t help Europe at a time of spiking cases and offers more justification for more aggressive action in the run-up to Christmas. But high vaccine rates and the arrival of boosters mean the continent (including the UK) comes off more lightly than other parts of the world. The effect might be slightly more noticeable in the US, even if the bar for lockdowns is much higher. Meanwhile, in Asia, Omicron stalls the move away from zero-Covid, especially in China. The recovery of supply chains is further delayed.” 

“Central banks are likely to ‘wait and see’ in December, not least because it may be weeks before we know what we’re dealing with. But inflation remains front and centre, so we should still expect some tightening of monetary policy next year.”

Omicron deals significant blow to the recovery

“We expect a dip in first-quarter GDP in the major developed economies, albeit not as deep as in early-2021. But the subsequent recovery could be gradual. Overall growth momentum proves more lacklustre through 2022, compared to the rapid rebounds we saw in Q2/3 2021.”