How omicron may not be so bad for the economy after all
Here we go again. Another COVID mutation with the potential to evade immunities is racing around the world. Could this trigger a new set of lockdowns? Might it slam the brakes on economic growth around the globe? Could it spook consumers or make investors nervous?
Although there is still much we don’t know about this variant, I am choosing to be an optimist. I do not anticipate much additional harm to the economy. In fact, there might even be some marginal benefits (emphasis: marginal) that could come out of it.
Now, admittedly, after nearly 2 years of this, I am looking for positive signs anywhere I can find them. And many others are raising the specter of more supply chain disruption and higher inflation due to omicron. But, in this instance, I see reasons for hope. Hear me out.
First, although omicron appears to be highly transmissible, it may not be as deadly as previous strains. This isn’t a surprise to scientists. Viruses cannot spread if they continue to kill their host. So, over time, it isn’t unusual for them to morph in ways that allow them to spread more easily, but become less deadly. Although scientists are quick to add that it is possible for a virus to become more lethal, that is not necessarily the case here.
Second, much more of the world is vaccinated and, while they may not be quite as effective, the vaccines still provide some level of protection against omicron. That means fewer hospitalizations and fewer people out of the workforce for extended periods of time. So the impact on businesses should be less severe than in the past. Far too many people — sadly, especially those in developing countries — are unvaccinated. But an estimated 36.5 million people are getting the shots every day.
Third, people are now accustomed to wearing masks, social distancing, and working via Zoom. Sure, we are all tired of these measures, but we know what to do. They have in many ways become social norms. So, instead of locking down as we did 18 months ago, we’re more likely to go out to restaurants and malls and generate economic activity.
Taken together, these factors mean that omicron may not be a worst case scenario, but it is still a potential drag on our lives and the economy.
But, here’s the reason for hope. Omicron might briefly tap the brakes on the economy to slow inflation, keep energy prices in check, and allow supply chains to catch up. While this occurs — say, over the next several weeks — vaccine manufacturers will develop shots that are more effective against this and future strains, more people will be vaccinated and boosted, and the media hype over the new mutations will become old news.
It’s worth noting that the Federal Reserve doesn’t agree with my assessment. Fed policymakers are concerned that omicron could exacerbate supply chain and labor market challenges and push inflation up. Time will tell.
Nonetheless, I see a plausible scenario in which we could head into the spring on a trajectory for growth, jobs, and a little more confidence. Unless, of course, news breaks about another variant.
Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.