Airlines to supermarkets: living with Covid is difficult in a stalled economy

The rapidly rising ommicron variant is complicating the recovery of a global economy still plagued by supply chain chaos, worker absenteeism and faltering assembly lines.

Supermarkets are having trouble filling the shelves due to a chronic staff shortage. Airlines are grounding flights. Manufacturers are dealing with disruptions and shipping companies still have a backup. At the same time, rising energy prices are contributing to inflation, putting pressure on central banks to raise interest rates even as the recovery slows.

Optimists argue that omicron’s economic blow will be limited as vaccinations and boosters allow the disease to shift from an acute phase to an endemic phase. US Treasury Secretary Janet Yellen said she does not expect the variant to derail the US recovery.

Analysis by Nomura of the impact of omicron on early affected countries, such as the UK and Canada, shows waves of shorter duration, faster descents from peaks and lower death rates than the delta variant. That means the psychological fear factor could quickly fade and a pent-up demand for services unleashed.

But as the pandemic continues into its third year, it is becoming clearer by the day that a return to economic normalcy is still a long way off. The global economy is now split between the countries living with the virus and China’s persistent pursuit of Covid zero.

Such cross flows represent an unusual combination of challenges that economists at Citigroup Inc. risk being embedded in the longer-term outlook. Their counterparts at JPMorgan Chase & Co. say that global growth is now sliding back because of the ommicron resistance.

The World Bank has already lowered its growth outlook and Kristalina Georgieva, general manager of the International Monetary Fund, predicted a difficult year for policymakers on Friday, saying 2022 will be like “navigating an obstacle course”. The IMF will release new forecasts in the coming days.

“There is a risk that the economic impact of the wave of omicron cases will be underestimated,” said Tuuli McCully, Asia-Pacific economics chief at Scotiabank.

While it appears that the severity of the variant has diminished and therefore the economic impact would be milder and focused on the first quarter, it is too early to say for sure as the number of cases is skyrocketing in many parts of the world. .”

chartThe wave of infection comes as inflationary pressures are forcing some Federal Reserve-led central banks to shift to raising interest rates. The US central bank is expected to announce plans to raise interest rates in March for the first time since 2018 at a meeting of the policy-making Federal Open Market Committee.

South Korea has already raised interest rates this month, the third hike since the summer, as well as tightening emerging economies. China is the exception, cutting interest rates to protect the economy from a real estate collapse and slowing domestic growth.

What Bloomberg’s Economists Are Saying…

“The ommicron wave sweeping the world has already dealt a blow to the recovery. High-frequency data, from restaurant bookings to airline passenger numbers, shows that demand is stalling. Employee absenteeism and company closures contribute to supply stress. The good news: Early evidence from the UK suggests the spike in ommicron cases — and impact on activity — may end almost as soon as it started. The great unknown: What happens when omicron collides with China’s zero-covid strategy, shutting down the world’s factory again?”

— Chief Economist Tom Orlik

For many economies, the disruption is real.

From Australia to the US and the UK, food supply chains for supermarkets are disrupted and prices have risen due to high freight rates, inclement weather, labor shortages and energy costs. Air travel continues to be plagued by travel restrictions and staff shortages, with thousands of flights around the world.

Heavy industry is also under pressure. Shares of Toyota Motor Corp. fell on Friday after the automaker announced extended production shutdowns amid rising Covid-19 cases and an ongoing chip shortage affecting its suppliers and operations in Japan.

Switch sales down

In Europe, car sales fell for the sixth straight month in December, underscoring the tough battle facing automakers. It will remain difficult to source enough semiconductors this year and the pandemic continues to weigh on consumer confidence.

In China, which produces many of the world’s industrial components and some consumer goods, shipping containers are piling up in the already secured Shenzhen port as congestion in the US and Europe spills back into Asia. The result: delivery delays that dampen growth and increase costs.

While China’s aggressive measures to contain the virus have enabled factories to weather the pandemic, the spread of omicron will make that approach even more difficult. Global manufacturers operating in China, including automaker Volkswagen AG, have reported outages due to lockdowns and other restrictions.

Among those on the front lines are global shipping companies trying to meet solid consumer and business demand amid logistical constraints such as port congestion, rail backups and truck driver shortages. Matson Inc., a Honolulu-based container carrier, said last week that “we expect these conditions to remain largely in effect through at least the October peak season and we expect high demand for our Chinese service for most of the year.” .”

Be prepared

Hong Kong-based Willy Lin, whose company Milo’s Knitwear (International) Ltd. makes high-quality sweaters from its factory in Dongguan for customers in Europe, is stocking important material to ensure it can meet future orders while the supply continues.

“We tell our customers that if you want to place orders, you have to do it now,” said Lin, who is also chairman of the Hong Kong Shippers’ Council. The veteran industry player is tempering expectations for a quick return to normal.

“I’m amazed that people still think these problems will go away soon,” Lin said. “It’s not realistic.”

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