A A BIT MORE more than a year after a covid-19 vaccine was first successful in a clinical trial, a sense of dread has gripped much of the world. The Omicron variant of the coronavirus, first identified publicly on November 24, may be able to bypass defenses built by vaccination or infection with covid-19. The World Health Organization has said that Omicron poses a “very high” global risk. The boss of Moderna, a vaccine maker, has warned that existing jabs could tackle the new, highly mutated variant. Faced with the appalling prospect of yet more lockdowns, closed borders and nervous consumers, investors have responded by selling shares in airlines and hotel chains. The price of oil has fallen by about $ 10 a barrel, the kind of drop often associated with a looming recession.

Listen to this story

Enjoy more audio and podcasts on ios Where Android.

As we explain this week, it is too early to say whether the 35 mutations in Omicron’s spike protein contribute to making it more infectious or fatal than the dominant Delta strain. As scientists analyze the data in the coming weeks, the epidemiological picture will become clearer. But the threat of a wave of disease spreading from country to country once again looms over the global economy, amplifying three existing dangers.

The first is that tighter restrictions in the rich world will hurt growth. On news of the variant, countries rushed to block travelers from southern Africa, where it was first identified. Israel and Japan have completely closed their borders. Britain has imposed new quarantine requirements. The pandemic abruptly ended an era of freewheeling global travel. Restrictions were relaxed this year, but last week showed that doors close much faster than they open.

The spread of Omicron is also likely to intensify the limits on free movement in the home. Europe was limiting many domestic activities even before the arrival of the variant, in order to fight against the upsurge in Delta infections. Italy is keeping most of the unvaccinated out of indoor restaurants, Portugal requires even those who are vaccinated to test negative to enter a bar and Austria is on full lockdown. The long-awaited recovery of the rich world’s huge service industries, from hospitality to conferences, has just been postponed.

An unbalanced economy fuels the second danger, which is that the variant could increase the already high inflation. This risk is greatest in the United States, where excessive fiscal stimulus by President Joe Biden overheated the economy and consumer prices rose 6.2% in October from a year earlier. , a peak in three decades. But inflation is also uncomfortably high elsewhere, at 5.3% globally, according to Bloomberg data.

You might think Omicron would reduce inflation, depressing economic activity. In fact, he could do the opposite. Prices are rising in part because consumers are gorging themselves on merchandise, jostling global supply chains for everything from Christmas lights to sneakers. The cost of shipping a container from factories in Asia to America remains extraordinarily high. For headline inflation to fall, consumers need to shift spending towards services like tourism and restaurants. Omicron can delay this. The variant could also trigger more lockdowns in key manufacturing nodes such as Vietnam and Malaysia, exacerbating supply issues. And prudent workers can delay their return to the workforce, pushing up wages.

This is perhaps one of the reasons Jerome Powell, Chairman of the Federal Reserve, indicated on November 30 that he was in favor of monetary tightening. This position is fair, but it has its own dangers. The spillover effects could hurt emerging economies, which tend to experience capital outflows and lower exchange rates when the Fed tightens.

Emerging economies have larger reserves and are less dependent on foreign currency debt than they did during the Fed’s botched attempt to loosen stimulus during the 2013 tantrum. Yet they must also face Omicron at home. Brazil, Mexico and Russia have already raised interest rates, which helps to avoid inflation but could reduce growth as another wave of infections looms. Turkey has done the opposite by cutting its rates and as a result its currency collapses. More emerging economies may face an unenviable choice.

The last danger is the least appreciated: a slowdown in China, the world’s second-largest economy. Not so long ago, it was a shining example of economic resilience in the face of the pandemic. But today it is grappling with a debt crisis in its vast real estate sector, ideological campaigns against private companies and an unsustainable “zero-covid” policy that keeps the country isolated and subjects it to draconian local lockdowns. whenever cases arise. Even though the government plans to stimulate the economy, growth has fallen to around 5%. Barring the brief shock at the start of the pandemic, this is the lowest in about 30 years.

If Omicron turns out to be more transferable than the previous Delta variant, that will make China’s strategy more difficult. As this strain travels more easily, China will need to reduce each outbreak even further in order to eradicate it, harming growth and disrupting supply chains. Omicron could also make China’s exit from its zero covid policy even trickier, as the wave of infections that will inevitably result from the spread of the virus could be larger, straining the economy and the healthcare system. This is especially true given the low levels of infection-induced immunity in China and questions about the effectiveness of its vaccines.

Vexatious variants and worrying weeks

It is not all gloomy. The world won’t see a repeat of Spring 2020, with jaw-dropping drops in GDP. People, businesses and governments have adapted to the virus, which means the link between GDP and the restrictions on movement and behavior are a third of what they used to be, Goldman Sachs says. Some vaccine makers expect new data to show that today’s vaccines will still prevent more severe cases of the disease. And, if they have to, companies and governments will be able to roll out new vaccines and drugs by 2022. Despite this, Omicron – or, in the future, Pi, Rho or Sigma – threatens to slow growth and ” increase inflation. The world has just received a stark reminder that the virus’s path to becoming an endemic disease will not be easy.

Dig deeper
All of our stories relating to the pandemic and vaccines can be found on our coronavirus hub. For Subscribers Only: To see how we design each week’s coverage, sign up for our weekly Cover Story newsletter.

This article appeared in the Leaders section of the print edition under the title “Danger Ahead”