How Omicron could derail the economic recovery

LONDON – This week Marisha Wallace finally had to admit that her planned five-day ski vacation at Switzerland in mid-December was not r...


LONDON – This week Marisha Wallace finally had to admit that her planned five-day ski vacation at Switzerland in mid-December was not recoverable: the sudden decision of the Swiss government to impose a 10-day quarantine on some international travelers meant she couldn’t leave her hotel or return home to London on her scheduled flight.

“It’s the way of the world right now,” said Ms. Wallace, an actress and singer. “You can’t plan anymore. “

This temporary state, amplified across the world, has left the still fragile economy in a state of suspense due to peaks in coronavirus infections and the new variant. Omicron have appeared all over the world.

“There is no way to know how much this will get worse,” said Ángel Talavera, head of European economics at Oxford Economics.

The forecasting firm sketched out three scenarios, including one that forecasts no noticeable effect on economic growth and one severe enough to halve that of next year. It will be several weeks before there is any more clarity, Oxford concluded.

The current round of restrictions has already curtailed travel and shaken consumer confidence. A virulent, vaccine-resistant strain could tip the economy again, while a mild strain could liberate health systems and allow the recovery to get back on track.

Like a report released Wednesday from Organization for Economic Co-operation and Development shown, although growth has been uneven, the global economy has rebounded faster and more strongly this year than what was expected. The report, compiled largely before the latest coronavirus news, nevertheless warned that growth is expected to slow: in the euro area, to 4.3% next year from 5.2% in 2021; and in the United States, to 3.7% in 2022 against 5.6%.

The organization called its outlook “cautiously optimistic.” But he reiterated how inextricably linked economic fortunes to the coronavirus: “The priority of economic policy is to get people vaccinated,” the report concludes.

Indeed, Omicron’s threat to recovery is just the latest in a series of zigzags the global economy has undergone since the coronavirus began its march across continents last year. Hopes that a receding pandemic would allow daily life and commerce to return to normal have been repeatedly thwarted by the virus.

Even before this last variant was discovered, a fourth wave of infections transformed Europe in a Covid hot spot and caused new restrictions like lockdowns in the Netherlands and Austria.

In previous epidemics, trillions in government aid helped quickly resuscitate ailing American and European economies. It also brought some unexpected side effects. Combined with pent-up demand, this support has helped produce a shortage of labor and materials and a rise in inflation.

Given the amount of debt accumulated over the past 18 months, such aid is unlikely to ever happen again, even in the face of a sharp drop, and neither are massive closings. Vaccines offer some protection, and many people say they don’t want to go back into hibernation.

People and businesses have gone into a wait-and-see mode. “A lot of things seem to be on hold, like the job market or overall consumer decisions,” said Nick Bunker, director of economic research for the job site Indeed.

How this will affect unemployment levels and inflation rates is not clear. Jerome H. Powell, the chairman of the Federal Reserve, said Tuesday that concerns about stubborn inflation were increasing. The OECD also warned that inflation could be higher and last longer than initially expected.

The appearance of Omicron only adds to the uncertainty, Laurence Boone, the organization’s chief economist, said in an interview.

“If this is something we can cope with, like the virus we have so far, it can prolong supply chain disruptions and inflation could take longer to settle. “she said. But if the new variant causes wider closings and a drop in confidence, she added, it could reduce the spending spree and cushion the price hike.

In the last days, governments reacted with a confusing hodgepodge tough warnings, travel bans, mask warrants and testing rules that further cloud the economic outlook. This patchwork response combined with people’s varying tolerance for risk means that, at least in the short term, the latest outbreaks of the virus will have a very different effect depending on where you are and what you are doing.

In France, Luna Park, an annual month-long amusement fair held in the southern city of Nice and slated to open this weekend, has been canceled after the government suddenly requisitioned the huge warehouse where were roller coasters, shooting ranges and rides. were being developed to convert the space into an emergency vaccination center.

“Today, I find myself trying to save my business, and I’m not sure I can do it,” said Serge Paillon, owner of the park. He feared suffering huge losses, including 500,000 euros (about $ 566,000) he had already invested in the event, as well as refunds of tickets on sale for several months.

Mr. Paillon has put 20 employees on leave. Another 200 festival workers who came from across the country to run the 60 games and rides were ordered to stay home.

“For a year and a half, it was already a disaster,” said Mr. Paillon. “And now it’s starting again. “

Israel’s decision Closing its borders to all foreign tourists for two weeks on Saturday is likely to reduce the number of tourists to Israel and the occupied territories in December to 40,000, nearly 60% of what was expected, according to one estimate of the government.

Wiatt F. Bowers, a city planner, had planned to leave Jacksonville, Fla., For Tel Aviv on Wednesday, but had to cancel – the fifth time in 18 months that he had to cancel a planned trip to Israel. He will change reservations, but doesn’t know when.

Foreign tourism, which drew a record 4.55 million tourists to Israel in 2019, had already almost vanished. Between March 2020 and September 2021, non-resident aliens were prohibited from entering Israel – and, by extension, the occupied territories, whose entry and exit is controlled by Israel.

In Bethlehem, where tourism is the main industry, incomes have fallen by more than 50 percent as a result, Mayor Anton Salman said in a telephone interview.

Elias al-Arja, head of the Arab Hotel Association, which represents around 100 Palestinian hotels in the occupied territories, said he was less concerned about the short-term effect of the sudden travel ban than by the long-term message of unpredictability it sends to potential visitors.

“The disaster was not the groups that canceled over the next two weeks,” al-Arja said. “How do I get people to come to the Holy Land after we promise them you can come, but then the government closes the border?” “

Reluctance to travel, however, could mean a recovery in other industries if the new variant isn’t as bad as people fear. Jessica Moulton, a senior partner at McKinsey & Company in London, said previous spending patterns during the pandemic showed that some of the money people would otherwise use on travel would instead be spent on eating.

She estimated that the roughly $ 40 billion British consumers saved on travel last summer was used for shopping and dining.

For now, said Moulton, “as Omicron cuts down on travel, which will happen as Christmas approaches, it will benefit restaurants.”

In Switzerland, where travelers from Britain and 22 other countries must now self-quarantine, the effect of the policy change on hotels was immediate.

“The majority of travelers from England – between 80 and 90% – have already canceled,” said Andreas Züllig, director of HotellerieSuisse, the Swiss hotel association.

Ms Wallace, who canceled her trip to the Cambrian Hotel in Adelboden, was one of many people who changed their hotel reservations after the Swiss government made its announcement on Friday, just a week before opening tracks.

“This obviously has an impact on our very important winter and Christmas activities,” said Anke Lock, manager of Cambrian, who estimated that 20 percent of hotel bookings in December were at risk.

For now, however, most of the guests are watching and waiting, Ms Lock said: “We have changed reservations from guarantees to provisional.”

Extreme uncertainty about the economy may turn out to be the only certainty.

Patrick kingsley contributed to Jerusalem reports, Melissa Eddy from Berlin and Léontine Welsh from Paris.

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