Feature Stories | Dec 02 2021
The emergence of omicron has sent markets and government into a potentially overwrought panic, but until we know more about the new variant the outlook is clouded.
-Global economic outlook was solid ahead of omicron
-Transmissibility and vaccine effectiveness as yet unknown
-Until then, economists remain more optimistic than pessimistic
-Australia relatively well-placed
By Greg Peel
In FNArena’s last update on equity strategy, Into The Headwinds (link below), the consensus among economists and analysts was that economies would continue to grow in 2022 but at a slower pace than in 2021. High inflation would last for longer than first thought but would start to ease at least by the latter half of the year.
Delta would ease as vaccinations rates continued to grow. Government fiscal stimulus, of the direct hand-out variety, would cease and central banks would shift into policy tightening through rate hikes – some sooner, some later. Corporate earnings growth rates would slow, but the outlook for equities would remain positive overall.
One caveat to the above was, of course, unless another new deadly strain of covid appeared.
Delta not done with
Before the sudden announcement of a new variant last Friday, and the swiftest time yet for WHO to officially declare it a “virus of concern”, the expectation of delta risk easing was already being tested as the northern hemisphere moves towards winter.
Before omicron, Europe was entering its fourth covid wave. The case-count in Germany has reached to a level 217% higher than the prior January peak as the more infectious delta muscled out prior strains.
Even in the Netherlands, where the percentage of fully vaccinated exceeds the European average, the case-count has surged and partial lockdowns have been instigated.
The good news is German hospitalisations are only running at 40% of the prior peak, notes Wilsons Stockbroking. Of those European countries seeing higher case-counts than the prior peak, hospitalisations average 35%. Of those where the case-count is lower, hospitalisations are only 19%.
Hospitalisation numbers are what really count in terms of economic impact rather than case numbers per se. While delta has brought about yet more deaths, incidences of mild symptoms or asymptomatic cases have been greater.
The UK has been an interesting case study, Wilsons suggests, as while the country has been dealing with elevated case numbers for some time, hospitalisations are only 22% of the prior January peak and the death rate 12%.
The US is also experiencing a rise in case numbers once more but for financial markets, inflation and monetary policy have been the far more influential focal points.
Australia is in better relative shape, Wilsons declares, given a higher vaccination rate than Europe or the US, a booster program now underway and the fact we’re heading into summer, not winter.
But Wilsons was writing before omicron.
Variant of Concern
Omicron is the fifth covid variant officially classified as a “variant of concern” by WHO. Following on from the original Wuhan strain, we saw alpha appearing in the UK, beta in South Africa and gamma in South America. Delta emerged out of India and overrode all previous strains.
Delta proved to be more infectious. Given the pace of spread of omicron in just a matter of days, the fear is omicron is more so.
Omicron was actually first detected in Botswana on November 9. It was not until November 24 the South Africans confirmed it was a new strain and alerted WHO. Two days later WHO named it a variant of concern, much faster than any earlier variant.
Omicron has spread faster across southern Africa than delta and the percentage of omicron in case-counts is rising exponentially. At the time of writing, omicron has been detected in 20 countries including Australia and the US.
This suggests omicron is more infectious than delta, and will push delta aside.