Leaders 13A
little more than a yearafterthefirstsuccessofa covid
vaccine in a clinical trial, a sense of dread has struck much
of the world. The Omicron variant of the coronavirus, first pub
licly identified on November 24th, may be able to circumvent
the defences built up by vaccination or infection with covid19.
The World Health Organisation declared that Omicron poses a
“very high” global risk. The boss of Moderna, a vaccinemaker,
warned that existing jabs may struggle against the heavily mu
tated new variant. Faced with the ghastly prospect of yet more
lockdowns, closed borders and nervous consumers, investors
have reacted by selling shares in airlines and hotel chains. The
price of oil has slumped by roughly $10 a barrel, the kind of drop
often associated with a looming recession.
As we explain this week (see Briefing) it is too early to say
whether the 35 mutations on Omicron’s spike protein help make
it more infectious or lethal than the dominant Delta strain. As
scientists analyse the data in the coming weeks, the epidemio
logical picture will become clearer. But the threat of a wave of ill
ness spreading from one country to the next is once again hang
ing over the world economy, amplifying three existing dangers.
The first is that tighter restrictions in the rich world will dam
age growth. On the news of the variant, countries scrambled to
block travellers from southern Africa, where it was first identi
fied. Israel and Japan have closed their borders
entirely. Britain has imposed new quarantine
requirements. The pandemic abruptly ended a
freewheeling era of global travel. Restrictions
were being eased this year, but the past week
has shown that gates are slammed shut much
faster than they are opened.
The spread of Omicron is also likely to inten
sify limits on free movement at home. Europe
was curbing many domestic activities even before the variant ar
rived, in order to fight surging infections of Delta. Italy is keep
ing most of the unvaccinated out of indoor restaurants, Portugal
requires even those who are vaccinated to have a negative test to
enter a bar and Austria is in full lockdown. The longawaited re
covery of the rich world’s huge service industries, from hospit
ality to conferences, has just been postponed.
A lopsided economy fuels the second danger, that the variant
could raise alreadyhigh inflation. This risk looms largest in
America, where President Joe Biden’s excessive fiscal stimulus
has overheated the economy and consumer prices rose by 6.2%
in October compared with the previous year, a threedecade
high. But inflation is also uncomfortably high elsewhere, at 5.3%
globally, according to Bloomberg data.
You might think Omicron would lower inflation, by depress
ing economic activity. In fact it could do the opposite. Prices are
rising in part because consumers are bingeing on goods, bung
ing up the world’s supply chains for everything from Christmas
lights to trainers. The cost of shipping a container from the fac
tories of Asia to America remains extraordinarily high. For over
all inflation to recede, consumers need to shift spending back
towards services like tourism and eating out. Omicron may de
lay this. The variant could also trigger more lockdowns in key
manufacturingnodessuchasVietnam and Malaysia, aggravat
ing supply glitches. And cautious workers may put off their re
turn to the labour force, pushing up wages.
That may be one reason why Jerome Powell, the chairman of
the Federal Reserve, indicated on November 30th that he favours
monetary tightening. That stance is right, but brings its own
dangers. The spillover effects could hurt emerging economies,
which tend to suffer capital outflows and falling exchange rates
when the Fed tightens (see Finance & economics section).
Emerging economies have greater reserves and depend less
on foreigncurrency debt than they did during the Fed’s botched
attempt to unwind stimulus during the tapertantrum of 2013.
Yet they must also cope with Omicron at home. Brazil, Mexico
and Russia have already raised interest rates, which helps stave
off inflation but may reduce growth just as another wave of in
fections looms. Turkey has done the opposite, cutting rates, and
faces a collapsing currency as a result. More emerging econo
mies could confront an unenviable choice.
The final danger is the least well appreciated: a slowdown in
China, the world’s secondbiggest economy. Not long ago it was
a shining example of economic resilience against the pandemic.
But today it is grappling with a debt crisis in its vast property in
dustry, ideological campaigns against private businesses, and
an unsustainable “zerocovid” policy that keeps
the country isolated and submits it to draco
nian local lockdowns whenever cases emerge.
Even as the government considers stimulating
the economy, growth has dropped to about 5%.
Barring the brief shock when the pandemic be
gan, that is the lowest for about 30 years.
If Omicron turns out to be more transmiss
ible than the earlier Delta variant, it will make
China’s strategy more difficult. Since this strain travels more
easily, China will have to come down even harder on each out
break in order to eradicate it, hurting growth and disrupting
supply chains. Omicron may also make China’s exit from its
zerocovid policy even trickier, because the wave of infections
that will inevitably result from letting the virus rip could be larg
er, straining the economy and the healthcare system. That is es
pecially true given China’s low levels of infectioninduced im
munity and questions over how well its vaccines work.Vexing variants and worrying weeks
It is not all gloom. The world will not see a rerun of the spring of
2020, with jawdropping drops in gdp. People, firms and gov
ernments have adapted to the virus, meaning that the link be
tween gdp and restrictions on movement and behaviour is one
third of what it was, says Goldman Sachs. Some vaccinemakers
expect fresh data to show that today’s jabs will still prevent the
most severe cases of the disease. And, if they must, firms and
governments will be able to roll out new vaccines and drugs
some months into 2022. Even so Omicron—or, in the future, Pi,
Rho or Sigma—threatens to lower growth and raise inflation.
The world has just received a rude reminder that thevirus’s path
to becoming an endemic disease will not be smooth.nOmicron amplifies three dangers that stalk the global economyDanger ahead