Omicron is casting a new shadow on the economy’s pandemic rebound – archyde

Just as Americans and Europeans have been longingly waiting for their most normal Christmas season in a few years, the Omicron variant has sparked a new round of fear and uncertainty – for travelers, shoppers, party-goers and their economy as a whole.

The Rockettes canceled their Christmas show in New York. Some London restaurants have emptied as commuters avoid the city center. Broadway shows are canceling some performances. The National Hockey League has suspended its games until after Christmas. Boston plans to provide proof of vaccination from guests, night owls, and shoppers to enter restaurants, bars, and shops.

Heightened anxiety has begun to undermine the willingness of some people and some companies to carry on as usual in the face of the exceptionally contagious variant of Omicron that has quickly become the predominant version of the virus in the United States.

However, other people still travel, spend, and gather with other people as they normally do, albeit often with a cautious wait-and-see perspective. Holiday air traffic remains robust. Many shops and restaurants are still enjoying solid sales. And omicron still has to keep a considerable number of audiences away from cinemas. Last weekend, record audiences from all sections of the population streamed into the cinemas for the new “Spider-Man” film.

“Omicron hasn’t got in the way of cinema,” said Steve Buck, EntTelligence’s chief strategy officer.

At the same time, no one knows what Omicron will ultimately mean for the health of Western economies, which have been on a wild ride of downturn and recovery since early 2020.

“These mutations keep coming back,” said Robin Brooks, chief economist at the Institute of International Finance. “What is the likelihood that we will get a really bad one at some point? Nobody has a clue. This thing is mutating, and it’s very, very difficult to say. “

Will Omicron cause outbreaks in factories and ports, disrupting operations, and exacerbating supply chain bottlenecks that have driven prices up and contributed to the hottest US inflation in decades?

Does this mean people are settling back at home and spending less on services – dining out, concerts, hotel stays – which could weaken the economy but potentially ease inflationary pressures?

Are plans to return to the office for white-collar workers put on hold indefinitely, adding to the impact on downtown business in many cities?

Or will Omicron prove to be a slip-up barely slowing the surprisingly strong recovery from the short but intense pandemic recession?

Terrified by uncertainty and fear of the worst case scenarios, global equity markets sold for three days before recovering today.

“We don’t know whether this is good or bad for growth or inflation in the medium term,” says Megan Greene, global chief economist at the Kroll Institute. “We just don’t have enough data yet.”

Unable to assess the longer-term impact, businesses, consumers and policymakers are struggling to respond to the omicron threat.

Danielle Ballantyne, a dietitian from Chicago, had planned to visit a few stores and get inspiration for Christmas gifts. But when Omicron took off, she ditched that idea to stay home and shop online.

“From what I’ve heard on the news,” Ballantyne said, “Omicron is more contagious. So I try to be more selective about large public spaces. “

In its stores in major cities like New York and Chicago, textile retailer Untuckit reports a 15% drop in traffic, similar to the spread of the Delta variant last summer.

“It affects people’s perception of comfort and safety and their willingness to go out,” said Aaron Sanandres, co-founder of the company.

As the infections have spread, European countries have so far gone further than the United States, with restrictions ranging from a complete lockdown in the Netherlands to indoor masking requirements in the United Kingdom.

A theater in the west of England reimbursed $ 240,000 in tickets. Advantage Travel Group, which represents UK travel agencies, said business – flights, cruises and package tours – fell 40% in mid-December from the previous month. A diner in central Madrid recently canceled around half of its space booked in one week.

In London, downtown restaurants are suffering from home office workers.

“As soon as you say work from home, it’s completely emptied,” says Sally Abe, cook at the Conrad Hotel in central London.

The UK announced today that it will provide $ 1.3 billion in grants and other aid to help the hospitality industry survive omicron. The government bowed to pressure from pubs, restaurants and other businesses whose incomes fell following the public health warnings.

Since the pandemic broke out almost two years ago, it has posed economic challenge after economic challenge. The economies almost closed when the virus emerged early last year. In the US alone, more than 22 million people lost their jobs. Bars, restaurants and hotels in particular were devastated.

However, record high government spending and, ultimately, the introduction of vaccines sparked an unexpectedly strong rebound and gave many households the confidence and financial means to shop again. And it sparked optimism for the 2021 holiday season: in an updated forecast just before Omicron emerged as a serious threat, the National Retail Federation said US Christmas sales were on the way to a record year.

Now it is feared that Omicron infections will further disrupt manufacturing and shipping, worsen the backlog in the supply chain, and simmer inflation. It could also increase consumer demand for goods, which has already increased, which would exacerbate supply shortages.

“If everyone freaks out about going to a bar or restaurant and taking them to a hospital, they can still buy goods,” said Greene, an economist at the Kroll Institute. “So that could exacerbate the short-term trend and worsen inflation.”

On the other hand, she said, “If growth is really dampened (by Omicron), it should curb inflation.”

There are other reasons to believe that recovery may be slowing. In the United States, economic aid is dwindling from federal spending and relief checks. The Federal Reserve is reducing its economic support. China’s economy, the second largest in the world after the US, is slowing.

For the time being, the US bond market is signaling more concern about economic weakness than about galloping inflation: the yield on ten-year US government bonds remains at a historically low level, below 1.5%.

Citing Omicron and other factors, Oxford Economics has slashed its estimate of US economic growth for the October-December quarter to an annual rate of 7.3%, down from an earlier estimate of 7.8%.

“Omicron has been so common,” said Kathy Bostjancic, Oxford’s leading US financial economist. “And it hits in densely populated areas of the northeast. We believe this will weigh on economic activity quite a bit. ”

However, it is also possible that the economy may prove resilient to the recent challenge that COVID has presented. A measurement of retail traffic shows that the new variant has hardly changed – at least so far. In the week that ended December 18, retail traffic increased nearly 20% year over year, but 23% over the same week the year before the pandemic, according to Sensormatic Solutions. On Black Friday, which ended on November 27, sales were up 30% year over year.

Peter McCall, director of retail advisory at Sensormatic, noted that shoppers still go to retail stores but now prefer open-air malls and outlet malls to closed malls.

Arnold Donald, CEO of Carnival Corp., the world’s leading cruise line, said this week Carnival had seen “a small spike” in cancellations but predicted it would only be a short-term spike.

“The booking patterns are strong,” said Donald.

Likewise, the traffic at some large retailers. Hundreds of people lined up to open the Toys R Us flagship store at the American Dream mall in East Rutherford, New Jersey, on Sunday.

“We were prepared for a big day, but it was bigger than we thought,” said Yehuda Shmidman, co-founder of WHP Global, told Toys R Us.

According to Abt Electronics in Chicago, the company has had a strong Christmas season so far, with sales up 10% over the previous year. But Jon Abt, co-president and grandson of the company’s founder, said he had noticed omicron is changing the way some people shop. Although fewer customers enter stores, the demand for roadside collection is increasing.

He’s also made changes for workers to help prevent the spread of COVID: he’s encouraging them to stay at the counters or warehouses where they work instead of jumping back and forth to different workplaces.

“I’m an optimist,” said Abbot. “I’m not worried. So life is. And you have to roll with the punches. “

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