The best and worst case scenarios for the Omicron variant in South Africa: economists

Asset manager firm Schroders has published its modelling on how the Omicron variant will likely impact South Africa’s economy in the coming months, with the group preparing for a significant increase in Covid-19 cases but fewer hospitalisations and deaths.

In a research note published this week, the firm said that uncertainty about the virulence of Omicron, and its ability to resist vaccination and spread rapidly, among other things, has rocked global financial markets.

“Those questions will take time to answer, meaning that sentiment is likely to remain dampened in the near term, particularly towards emerging markets that are most sensitive to risk appetite and tend to lag behind in the deployment of Covid-19 treatments,” said David Rees, senior emerging markets economist at Schroders.

“This is particularly the case for South Africa and other parts of the African continent. From an economic point of view, the emergence of Omicron adds to the recent tilt in many parts of the world towards the reintroduction of restrictions to contain fresh waves of Covid-19 infections.”

Until concerns about Omicron are cleared up, he said domestic lockdown measures and travel bans add downside risks to global growth and could exacerbate inflationary pressures if there are further disruptions to supply chains.


Schroders expects the leading vaccine makers – such as Pfizer and Moderna – to have data about what protection is conferred by their existing jabs within the next fortnight. Better data on transmissibility should come in the next two to four weeks and on the severity in the next one to two months.

The key metric to watch in the meantime will be data on hospitalisations and deaths in South Africa, especially the Gauteng province where most Omicron cases have so far occurred, it said.

The table below offers a round-up of what Schroders believe to be possible scenarios of how the variant develops.

  • The baseline scenario considers the situation until recently with the spread of the Delta variant. In this case, approximately 85% of South Africans have immunity, and no significant change in hospitalisations or deaths occur.
  • Scenario A would see the new variant as both more infectious and more virulent, leading to very high hospitalisations and deaths. Schroders said that there is a low chance of this scenario playing out.
  • Scenario B forecasts Omicron to be as infectious as the Delta variant but with some immune escape, leading to more infections. This would lead to a rapid rise in hospitalisations and deaths. Schroders said that there is a medium chance of this scenario playing out.
  • Scenario C would see a high escape/low virulence situation where more people are susceptible to catching the virus and spreading it. Still, there are fewer than expected deaths and hospitalisations. Schroders said that this scenario has the highest probability of occurring.
  • Scenario D forecasts a very high level of immune escape, leading to spectacular growth in cases until restrictions change.
  • Scenario E forecasts that no immunity is conferred from vaccines and that labs cannot find neutralising antibodies. Schroders said that there is a low chance of this scenario playing out.

Countries are already taking steps to try to limit the spread of the variant. Japan, Israel and Morocco are among those to have closed their borders to all tourists, while many countries have instituted travel bans or quarantine rules on southern Africa.

However, such measures are probably already too late to have a significant impact, Schroders said.

“Omicron has been identified already in several countries and is probably already present everywhere that doesn’t have strict entry requirements. It will probably be spreading most rapidly in countries where Covid restrictions had already been largely lifted, such as the US, UK, South America and much of South Asia.”


While it is still very early in dealing with this new variant, the world is not back at square one as it was in March 2020, said Johanna Kyrklund, chief investment officer at Schroders.

“In the intervening time, we have learnt a huge amount about the virus, the science is moving at speed, and much of the developed world at least has high levels of vaccination coverage. I, therefore, don’t think it’s time for investors to be shying away from risk entirely. But the uncertainties are too great for this to be called a buying opportunity.”

She noted that in December 2020, the world had announcements of the first Covid-19 vaccines.

“That was the moment when being punchy proved the right strategy: big bets on cyclical assets – especially those tied into the re-opening trade – proved the right call,” Kyrklund said.

“However, markets have moved on since then. The economic cycle has matured, and valuations are higher now. With the new variant posing additional risk to growth, I don’t think it’s time for similarly broad macro calls. It’s time to be more nuanced.”

Investors also need to bear in mind that the emergence of the new variant may see central banks delay tightening monetary policy, she said.

“We already thought central banks were behind the curve in terms of reacting to higher inflation. If they further delay tightening, this could continue to support valuations.”

“Given both the heightened uncertainty and the late stage of the economic cycle, diversification will likely prove crucial. The role of fixed income as a diversifier in portfolios remains important, in my view.”

Kyrklund said investors might want to consider adjusting their exposure to equities rather than moving out of shares entirely.  She added that Europe is perhaps a region where equity performance may be more challenged in the near term.

Several countries were already instituting new Covid restrictions given rising infections before news of the variant. In terms of investment styles, growth may continue to be favoured over value, which could see the US as a relative winner.

“Ultimately, it is too soon to say how Omicron will affect markets longer term. We simply don’t have enough information about it yet. At the margins, taking care over cyclical exposure could be prudent in the near term, but it’s too soon for a wholesale change.”

Read: 3 lockdown scenarios for South Africa – including fourth wave restrictions over Christmas

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The best and worst case scenarios for the Omicron variant in South Africa: economists