Economic Development Amidst Omicron
On Black Friday, the markets sharply dropped in response to news of a new COVID variant, branded with the Greek letter “Omicron.” The Dow Jones dropped nearly 900 points, and all three major indices finished down over 2%. Much of Europe, Asia, and Australia have already dealt with lockdowns and other heavy restrictions. The new variant has sparked fears of returning to the dark days of 2020. This is the third major strain of COVID-19 that we’ve faced, following Alpha and Delta. The new strain comes from South Africa and has already landed throughout the rest of the world, including the United States, Israel, Egypt, and the Netherlands. As health experts predict Omicron will not be stopped from spreading around the world. Assessment of the prospective economic impact is a vital part in aligning investment strategies for 2022 and beyond.
While nearly every sector lagged on Black Friday in response to the news out of South Africa, the large drug makers in fact surged. Moderna CEO, Stephane Bancel, released a statement that, “If we have to make a brand-new vaccine, I think it’s going to be early 2022 before it’s really going to be available in large quantities.” Similarly, Pfizer CEO Albert Bourla said that he expects the company’s Covid-19 treatment pill to be effective against the omicron variant of the virus and submitted to the FDA an application to authorize their pill, Paxlovid, for emergency use (1).
Healthcare companies are undoubtedly bracing for the worst possibility of the virus and are seeking quick approvals from the FDA and CDC. However, so far there have been no reported deaths linked to the omicron variant (2). Even further, the South African doctor, Dr. Angelique Coetzee, who first identified the strain, noticed seven patients at her clinic who had symptoms different from the dominant Delta variant, albeit “very mild (3).” Dr. Coetzee noted, “Most of them are seeing very, very mild symptoms and none of them so far have admitted patients to surgeries. We have been able to treat these patients conservatively at home. The most predominant clinical complaint is severe fatigue for one or two days.” Since Friday, many countries have also banned air travel to and from South Africa, including the United States, European countries, and some Asian nations (4).
Figure 1: New Infections and Deaths in South Africa, December 31, 2020 – November 28, 2021. Graph from Reuters; Reuters COVID-19 Tracker
As depicted by the graph, South Africa is entering a fourth wave of Covid since last December. However, as daily new infections pick up, daily deaths remain stagnant. Just as the Delta variant was much more transmissible, but less lethal than the Alpha variant, we may be dealing with a similar comparison in the Omicron variant. Of course, this may be untrue, as the Omicron variant may prove to be harsher to deal with and more infectious than the strains we have previous seen.
However, as we look at economic indicators over the lifespan of Covid-19 to use as an indicator to gauge the Omicron variant, it seems to point in a positive direction.
Figure 2: Real GDP: Percent change from preceding quarter, Q2 2020 – Q3 2021. Graph from Bureau of Economic Analysis; BEA (Gross Domestic Product)
GDP took a massive downturn in Q2 of 2020, as lockdowns spread across the country, as well as almost every other nation. Naturally, as we came out of lockdowns and restrictions eased, GDP resumed course from 2019. As a matter of fact, GDP did not just continue growing at the rate before the pandemic, but rather much quicker. From Q1 2019 to Q1 2020, GDP grew by 0.90%. In turn, from Q1 2020 to Q1 2021, GDP grew by 2.59%. Stimulus checks, from PPP to personal handouts, played a large role in this growth.
Figure 3: Unemployment Rate, Seasonally Adjusted, October 2019 -October 2021. Graph from Bureau of Labor Statistics; US Department of Labor
Additionally, unemployment continues to decline, fueled by the end of many unemployment benefits, and economic expansion.
Figure 4: Effect of Coronavirus on Major Global Stock Indices 2020-2021. Graph from Statista
The economy does in fact face a plethora of other issues, spanning from inflation to supply-chain crunches. However, much of these issues can be traced back to the lockdowns imposed by governments, rather than COVID-19 itself. As a result, expectations remain high across nearly all sectors of the economy. Whether certain issues are further exacerbated by additional government lockdowns, the world response to Omicron is yet to be known. But as innovation continues to drive economic output, there is little cause for concern.
1) CNBC, November 29, 2021
2) NPR, November 29, 2021
3, 4) Reuters, November 28, 2021