Goldman Sachs economists set out four scenarios for the potential impact on global economic growth from a new coronavirus variant, while adding that it’s too early to adjust their forecasts given it still isn’t clear which is likely to transpire.
- Downside Scenario: Omicron transmits faster than predecessor, delta. This results in first-quarter global growth slowing to a 2% quarter-on-quarter annual rate, or roughly 2.5 percentage points below Goldman’s current forecast. For 2022 as a whole, the global economy still expands by 4.2%, or 0.4 percentage points below current forecast, while the inflation outlook is “ambiguous”
- Severe Downside: Both the disease severity and immunity against hospitalizations are substantially worse than for delta. Global economic growth takes a more substantial hit, while “the inflation impact is again ambiguous”
- False Alarm: Omicron spreads slower than delta and has no significant effect on global growth and inflation; and
- Upside: Omicron is slightly more transmissible, but causes much less severe disease. In this speculative “normalization” scenario, a net reduction in disease burden leaves global growth higher than Goldman’s baseline. Inflation is likely lower as the rebalancing of demand, and the recovery in goods and labor supply accelerate
“The upshot is that omicron could have sizable growth effects, but that the range of medical and therefore economic outcomes remains unusually wide,” Goldman economists led by Jan Hatzius said in a research note.
“Given this and the possibility of a ‘false alarm,’ we are not making omicron-related changes to our growth, inflation, and monetary policy forecasts until the likelihood of these scenarios has become somewhat clearer,” they said.
What comes next is likely be dictated by what scientists discover about the new Covid-19 variant, including how resistant it is to vaccines and how much more transmissible it is than the delta variant, which raged in recent months without sending economies back toward recessions.