Should The Global Economy Be Concerned About Omicron?

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Should the Global Economy Be Concerned About Omicron?
Omicron variant is a worrying development Covid Omicron Variant - Free image on Pixabay

There are still a lot of unknowns about the new COVID-19 variant, which has been given the name Omicron. It was discovered first in South Africa, although it may have not originated there. Just one or two days later, it was also diagnosed in patients in many other countries. Today, cases of COVID-19 are rising again in what is called the fourth wave of the pandemic in several places around the world. Germany, Austria, and many other European countries are witnessing a very high number of daily infection rates, even the highest ever in some instances. All of this has caused panic in the market, and the impact of it still has not fully unfolded yet.

What is so worrying about Omicron?

According to the scientists who studied the new variant, Omicron has around 30 changes to its spike protein. This means that it can get attached more easily to human cells, which in turn explains why it is much more contagious than the Delta variant. This can be seen clearly on the infection charts as this wave seems to be bigger than the ones before it, considerably, and this is still scaring the markets.

The impact of Omicron on the markets and economies

The “big bang” of Omicron was felt substantially on the 26th of November, when major Asian, European, and American indices suffered from steep declines. This was largely due to the uncertainty around the new variant and the many unanswered questions. Will the vaccines work as effectively? Will it cause severe disease? Will it lead to strict lockdowns? There were and still are too many unknowns. Those seeking trading opportunities must find answers to these questions, before things pick up again.

Some answers are emerging, which in turn has calmed the markets to some extent but not entirely. It appears that Omicron causes mild symptoms despite the higher transmissibility. Moreover, the CEO of BioNTech, the company behind Pfizer’s vaccine, expects that the vaccine will probably protect against the new variant, even though this will still take time to verify. The world still needs around a couple of weeks before knowing more.

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Losses across the board

The markets are still jittery. Moves in some indices reminded investors of the crisis witnessed in the first quarter of 2020. Some declines in the past weeks were marked as the steepest in 2021. Equities lost ground, and oil prices dropped to around $70 US per barrel on the expectation that the demand for oil will go down. OPEC+ exasperated the decline by announcing increased production, and the price went down to around $62. Safe haven currencies like the Yen and Swiss Franc gained ground and strengthened. It is clear, thus, that investors were overall trying to avoid risk.

Impact on Nigeria and Africa at large

It seems that South Africa is the epicenter of Omicron spread, as it has the highest number of recorded cases. This means that the country and other African countries will be more susceptible to the impact of the virus, physically and economically. The fact that many African countries are emerging markets means that they will also suffer from inflation as a result. Nigeria, in particular, is estimated to be especially vulnerable to shocks in oil prices.

African countries are vulnerable to COVID-19 developments Free vector graphic on Pixabay
African countries are vulnerable to COVID-19 developments
Free vector graphic on Pixabay

What is next for global markets?

What happens next in global equities, bonds, and currencies depends on upcoming answers. In general, risk-aversion has become less intense, but any bad news can swiftly change the mood. Before this recent decline, valuations were quite high according to many investors, and many analysts were expecting a correction. The recent news about Omicron may have been the trigger that the markets needed, but the decline did not persist. Equities are still not in bearish territories, and the direction remains bullish for now, unless bad news resurfaces.