Enda Curran
Published: 23 Jan 2022, 07:01 pm
Representational Image || Photo: Collected
The
surging omicron variant is complicating the recovery for a world economy that
continues to be wracked by supply chain chaos, worker absenteeism and faltering
assembly lines.
Supermarkets
are struggling to stock shelves amid chronic staff shortages. Airlines are
grounding flights. Manufacturers are facing disruption and shipping lines
remain backed up. At the same time, surging energy prices are adding to
inflation, pressuring central banks to raise interest rates even as the
recovery slows.
Optimists
argue that the economic hit from omicron will be limited as vaccinations and
boosters allow the disease to shift from an acute phase to an endemic one. US
Treasury Secretary Janet Yellen said she doesn't expect the variant to derail
the US recovery.
Analysis
by Nomura of omicron's impact on nations hit early like the UK and Canada shows
shorter duration waves, faster descents from peaks and lower death rates than
the delta variant. That means the psychological fear factor could soon fade and
pent-up demand for services would be unleashed.
Still,
as the pandemic persists into its third year, it's becoming clearer by the day
that a return to economic normality is some way off. The global economy is now
split between those countries living with the virus and China's dogged pursuit
of Covid-zero.
Such
crosscurrents pose an unusual combination of challenges that risk getting baked
into the longer-term outlook, according to economists at Citigroup Inc. Their
counterparts at JPMorgan Chase & Co. say global growth is now downshifting
because of the omicron drag.
The
World Bank has already lowered its growth outlook and International Monetary
Fund Managing Director Kristalina Georgieva on Friday predicted a difficult
year for policy makers, saying 2022 will be like "navigating an obstacle
course." The IMF will release new forecasts in coming days.
"There
is a risk of underestimating the economic impact from the surge in omicron
cases," said Tuuli McCully, head of Asia-Pacific economics at Scotiabank.
"While
it seems that the severity of the variant is reduced and therefore the economic
consequences would be milder and focused on the first quarter, it is still too
early to say with certainty given that cases are skyrocketing in many parts of
the world."
The
infection surge comes as inflation pressures are forcing some central banks,
led by the Federal Reserve, to shift toward raising interest rates. The US
central bank, in a meeting of the policy-setting Federal Open Market Committee
this week, is expected to signal plans to raise interest rates in March for the
first time since 2018.
South
Korea has already raised rates this month, its third hike since the summer, and
emerging economies are also tightening. China is the exception, cutting rates
to shield the economy from a property slump and slowing domestic growth.
For
many economies, the disruption is real.
From
Australia to the US and the UK, food supply chains for supermarkets are being
disrupted and prices have soared on the back of high freight rates, poor
weather, labor shortages and energy costs. Airline travel continues to be
dogged by travel restrictions and staffing shortages, with thousands of flights
grounded around the world.
Heavy
industry is also being squeezed. Shares of Toyota Motor Corp. fell on Friday
after the automaker announced expanded production halts on rising Covid-19
cases and an ongoing chip shortage impacting its suppliers and operations in
Japan.
Downshifting
Sales
In
Europe, car sales slid for a sixth straight month in December, underscoring the
uphill battle that its automakers face. Sourcing enough semiconductors will
remain arduous this year, and the pandemic continues to weigh on consumer
confidence.
In
China, where much of the world's industrial components and some consumer goods
are produced shipping containers are stacking up at the already backed-up
Shenzhen port as congestion in the US and Europe ricochets back to Asia. The
result: delivery delays that weigh on growth and add costs.
While
China's aggressive measures to suppress the virus has allowed factories to
power through the pandemic, omicron's spread will make that approach even more
difficult. Global manufacturers operating in China, including automaker
Volkswagen AG, have reported disruption due to lockdowns and other restrictions.
Among
those on the front lines are global shipping companies trying to meet solid
demand from consumers and businesses amid logistical constraints like port
congestion, rail backups and trucker shortages. Matson Inc., a Honolulu-based
container carrier, said last week that "we expect these conditions to
remain largely in place through at least the October peak season and expect
elevated demand for our China service for most of the year."
Be
Prepared
Hong
Kong-based Willy Lin, whose company Milo's Knitwear (International) Ltd. makes
high-end sweaters from its factory in Dongguan for clients in Europe, is
stocking up on key material to ensure he can meet future orders as the supply
snarls continue.
"We
are telling our customers, if you want to place orders you must do it
now," said Lin, who is also chairman of The Hong Kong Shippers' Council.
The veteran industry player is tempering expectations for a quick return to normal.
"I am surprised that people still think these problems will go away soon," Lin said. "It's not realistic."
Enda Curran, Bloomberg