How is Omicron impacting the global economy?
Macro Insight
QuantCube analyzes the impact of Omicron variant on global economy
As the COVID-19 pandemic enters its third year, the Omicron variant – the fastest-spreading virus in history – is creating new challenges in the global fight against Coronavirus. First reported to the World Health Organization by South Africa on November 24th, 2021, Omicron is now dominant in most countries and is causing an unprecedented surge in cases. With further restrictions and increased uncertainty about the degree of spread, the Omicron outbreak has emerged as a renewed threat to the global economy just when it started to recover from a deep recession.
Using real-time data and market indicators, we analyzed how Omicron is impacting the world’s major economies. Our analysis focuses on economic growth and specific sectors, such as industrial production and mobility, which are among the most affected by the pandemic.
Eurozone and the US - learning to live with the virus
QuantCube’s GDP Nowcast shows that the impact of Omicron on the economic growth of western economies is far weaker than previous waves caused by other variants. We’ve observed that for the first time, the economic growth nowcast is showing an uptick trend during a period of a strong surge in cases. Indeed, European countries and the US are finding a way to coexist with COVID-19, recognizing that measures which are too restrictive could dramatically impact their economic recovery.
Change in mobility patterns
We’ve observed that there was no notable change in mobility patterns due to the surge in Omicron cases compared to last year. Exhibit 2 represents the evolution of the Google Mobility Index specific to workplace patterns in the United States. The data shows the change in the number of visitors going to categorized places compared to a baseline value for that day of the week. The baseline is based on data taken from a period pre-COVID, i.e., the median value from the 5‑week period between January 3rd and February 6th, 2020.
A seasonal effect is observed in November and December during the Thanksgiving and Christmas holiday periods where travelling to the workplace dropped significantly. However, right after the holiday season, at the beginning of 2022, workplace mobility levels are higher compared to the level observed back in January 2021. In fact, this almost reached the level registered in October 2021 before Omicron had been detected. It's notable that overall, mobility patterns to the workplace are still 20% below pre-COVID levels, suggesting that remote work continues to be widespread. However, compared to one year ago it seems that more people are back in their place of work – evidence that western economies are shifting to a policy of living with the virus as a result of the vaccination program.
How will China face the arrival of Omicron?
Although China has not yet faced a significant Omicron outbreak, the first Omicron case was detected in January and several COVID-19 clusters have been reported recently. Entire affected cities and neighborhoods were put in strict quarantine due to China’s “zero COVID strategy”. This was the case of Xi'an, a city of 13 million people and one of the country's major manufacturing and logistical hubs.
To measure the impact of these draconian measures on the local economy of Xi'an, we used QuantCube’s Air Pollution Indicator to observe NO2 concentration in the atmosphere over Xi’an. The Air Pollution Indicator leverages Sentinel-5P satellite images and QuantCube’s proprietary computer vision technology to gauge the level of industrial production activity and mobility. The images below represent the NO2 concentration levels over two Chinese cities during the same period: Xi'an and Qingdao. Xi'an experienced a strict lockdown between December 22nd 2021 and January 24th 2022, while the port city of Qingdao had no restrictions imposed due to COVID.
We observe a visible drop in NO2 concentration levels in Xi’an during its lockdown (upper right image), suggesting a significant slowdown in industrial production and mobility. Similar trends were also observed for other cities such as Yuzhou and Anyang, which experienced a strict lockdown in January. On the other hand, NO2 concentration levels in Qingdao remained relatively unchanged suggesting that the industrial activity and mobility were not significantly affected.
Omicron’s recent arrival in China is representing a real threat to the country’s economy. China continues to employ its zero-COVID strategy; therefore, affected areas face stringent travel restrictions, extensive quarantines, and snap lockdowns. In the past, with strict and authoritarian policies the People’s Republic has managed to effectively control the spread of COVID-19. This allowed China to become one of the few major economies to register a positive real GDP growth in 2020 and a continuation of rapid growth in 2021. However, a much more transmissible variant is challenging this zero-COVID strategy. Is such a draconian policy effective to control the virus spread, and moreover, is it sustainable to protect its economy? We will continue to observe China’s economic growth to evaluate the true effect of Omicron in the coming months.
