Omicron variant could slow global economic growth: US Treasury Secretary

The new COVID-19 variant – Omicron could slow global economic growth by exacerbating supply chain problems and depressing demand, says US Treasury Secretary Janet Yellen. She cited uncertainty and highlighted the severe US economic slowdown which was caused by the delta variant earlier this year.

“Hopefully, it’s not something that’s going to slow economic growth significantly, Yellen told the Reuters Next conference, a virtual global conference. “There’s a lot of uncertainty, but it could cause significant problems. We are still evaluating that.”

The US Treasury Secretary said the new strain of the COVID-19 could exacerbate supply chain problems and boost inflation. “It could also depress demand and cause slower growth, which would ease some of the inflationary pressures.” Yellen said she is ready to use the word ‘transitory’ to describe the current state of inflation plaguing the US recovery from the COVID-19 pandemic.

The Organization for Economic Cooperation and Development (OECD) believes a renewed wave in the pandemic threatened to add to the existing strain on the world economy from persistently high levels of inflation. “Should omicron prove more transmissible than other variants or more resistant to existing vaccines, it could exacerbate disruption to already battered supply chains and risk driving up inflation for a prolonged period,” it said. “If it takes a more severe turn, it could also force governments to impose tighter mobility restrictions, hurting demand for goods and services, and leading to a sharp fall in economic activity and lower inflation, similar to the earliest phase of the pandemic.”

Laurence Boone, the chief economist, OECD, said there are two scenarios facing the international economy as omicron adds to the uncertainties in the recovery from the global health crisis. “One is where it creates more supply disruptions and prolongs higher inflation for longer. And one where it is more severe and we have to use more mobility restrictions, in which case demand could decline and inflation could actually recede much faster than what we have here,” she said. “If the Omicron turned out to be “more evil” than other variants, governments could be called upon to step in to cushion the blow for businesses and households. “That could be a scenario where we need more fiscal support at this stage.”

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Boone highlighted that the G20 group of wealthy nations had spent about $10 trillion in emergency support since the start of the pandemic, but that it would take just $50bn to ensure vaccination worldwide.

She believes that the omicron variant may actually be a reminder of how shortsighted that failure has been. “We are spending to support our economies, while we are failing to vaccinate the whole world. As a result, the world really is not looking better.”