- Since the Omicron variant emerged it has quickly become the dominant COVID-19 strain. Global cases have surged, but also retreated more quickly. Moreover, severe cases have increased proportionally far more slowly.
- Government restrictions have been mixed, if more muted, but individual behaviour has adjusted to Omicron – so we expect a weaker fourth quarter 2021 (Q4) and first quarter 2022 (Q1) in most economies. Activity is likely to rebound quickly and annual growth outlooks are broadly similar for developed economies.
- Emerging market (EM) economies will also be disrupted. The apparent lower severity of Omicron may be a boon for EMs if it makes people more resilient to future waves of the virus, something that could lift activity faster in the second half of 2022 and beyond. However, the risks from disruption are higher in EMs. Moreover, China faces a specific risk if its ‘zero-COVID’ policy is breached.
- Inflation is likely to remain elevated for several months longer because of Omicron but should still be in visible retreat from the spring – and may fall further if a benign outlook for EMs emerges. Yet risks to EMs and China pose upside risks to inflation rates globally.