Worst case scenario: Economists analyse how omicron will impact recovery

The omicron variant is dealing a blow to optimistic hopes that the world economy would enter 2022 on a firmer footing, potentially undermining plans by policymakers to focus on inflation rather than weak demand, a Bloomberg news report on Business Standard and other websites said.

The imposition of travel restrictions will shake consumer and corporate confidence, likely limiting activity in some places just as the holiday season gets underway in many economies. Japan will effectively ban the entry of all foreign visitors as part of its plan to curb the virus spread, the reported cited broadcaster NTV as reporting.

Markets moved swiftly to price in an economic blow. Expectations for interest-rate increases over the coming year dropped by at least 10 basis points on Friday for the central banks of the U.S., U.K., and Australia.

What comes next will be dictated by what scientists discover about the new covid-19 variant, including how resistant it is to vaccines and how more transmissible it is than the delta variant which raged in recent months without sending economies back toward recessions.

The worst case scenario would be if the mutation necessitates a return to growth-crippling lockdowns, which would threaten already strained supply chains and damage recovering demand. That would reignite fears of a stagflationary mix of faster inflation and slower growth.

According to the report, Goldman Sachs Group Inc. economists spelled out four possibilities, one of which includes a downside scenario where a large infection wave in the first quarter of next year sees global growth slow to a 2% quarter-on-quarter annual rate — 2.5 percentage points below their current forecast. Growth in 2022 as a whole would be 4.2% or 0.4 percentage points below forecast.

Goldman Outlines Scenarios for Omicron’s Impact on Global Growth

A benign outcome is that the mutation doesn’t prove as threatening as initially feared. But its emergence serves as a reminder that the pandemic will remain a threat for the global economy, potentially for years to come.

“We are not yet in stagflation,” said Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA. “But one more year without cross-border mobility and related supply chain disruptions might push us there.”

Smaller Impact

Even still, some economists say the fallout may be less than seen during the 2020 recession.

Governments, albeit not China’s, have shown a reluctance to rush back into lockdowns. And the supply of vaccines partly explains why high-frequency data suggest curbs that have been imposed in Europe have proved more flexible and less damaging to growth.

“Businesses and households have adapted to restrictions and lockdowns and so the blows may not be as severe this time around,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc.

“That would mean localised lockdowns as outbreaks emerge, tighter restrictions on regional travel, and a greater likelihood of port shutdowns,” he said. “China has proved adept at managing outbreaks, but the long-run economic costs will mount if highly-transmissible strains are endemic globally.”

If the variant spreads “it could slow the healthy momentum in the economy” of the U.S., according to Mickey Levy, chief economist for the U.S. and Asia at Berenberg Capital Markets.

Markets calmed in early Asia trade Monday after a sharp sell-off Friday as news of the variant arose. S&P 500, Nasdaq 100 and European contracts jumped and oil rallied back above $70 a barrel.

Before omicron emerged, some economists had tipped a transition in demand away from durable goods and toward services such as leisure, travel, and tourism. But that switch may now be delayed — denting prospects for a global recovery that is already uneven.

The International Monetary Fund in October warned that the recovery has lost momentum and become increasingly divided. The fund calculated gross domestic product for advanced economies will regain its pre-pandemic level in 2022 and even exceed it by 0.9% in 2024; it reckoned to emerge and developing markets would still undershoot their pre-pandemic forecast by 5.5% in 2024.

Policy Options

One challenge for policymakers battling the economic aftershocks of a sustained outbreak will be the fact that they have fewer options after last year’s stimulus effort.

Only a handful of central banks have tightened monetary policy since the end of last year’s recession and the developed world’s key benchmarks remain around zero, meaning they lack room to come to the rescue again. Governments are already shouldering soaring debt burdens.

“In the absence of concerns about any negative impact of the variant, the Fed would in all probability speed up its tapering of asset purchases, but the uncertain downside effects of the variant likely lead the Fed to postpone any such decision,” said Levy.

Traders have rushed to wager that the Federal Reserve and its peers will be slower to raise rates. Futures signal the first Fed hike may not come until July 2022, a month later than was seen last Wednesday when June was the first month with an increase fully priced in.

Even so, Federal Reserve Bank of Atlanta President Raphael Bostic on Friday played down the risk of the new variant and remained “very open” to accelerating the withdrawal of the Fed’s asset purchase program.

European Central Bank Governor Luis de Guindos said he too thought “the effects over the economy will be more limited than last year.”

Policymakers have proved adept at changing tack if required. If nothing else, the existence of omicron shows the perils of making predictions in the pandemic age.

“One thing is for sure, the economic uncertainty has risen even higher: economists need a big dose of humility in forecasting the 2022 outlooks,” said Subbaraman. “That dose has now got even bigger.”

In India, experts say a big third wave is unlikely as Covid cases stay low on ‘hybrid’ immunity, vaccination

Is the worst of the Covid crisis behind India? As cases dip in the country three weeks after Diwali, the answer is a possible yes, say, several experts, attributing the downslide to a large section of the population already exposed to the virus during the second wave and a stepped up vaccination campaign, according to a PTI report on the Economic Times and other websites.

Although there are always imponderables, including the possibility of a new, transmissible variant and the onset of winter in large parts of the country, a third wave as devastating as the second one is unlikely, they said while advising caution and vigilance.

Covid cases may rise, perhaps across late December-February, but the impact will be milder than what India experienced in the second wave when thousands died and many thousands more were hospitalised.

“… it may not take off in a coordinated manner across the country, provided no far more transmissible variant comes along,” explained Gautam Menon, professor, Departments of Physics and Biology, Ashoka University, in Sonepat.

Several epidemiologists had predicted a third wave peaking in October and November because of large gatherings in the festive season, which includes Durga Puja and Diwali. But the much feared spike thankfully hasn’t happened.

On Tuesday, India recorded 7,579 new coronavirus infections, the lowest in 543 days, taking the country’s total tally of COVID-19 cases to 3,45,26,480, while active cases were the lowest in 536 days, according to Union Health Ministry data.

According to officials, around 82 percent of the eligible population in India has received the first dose of the vaccine while around 43 percent has been fully inoculated.

The daily rise in new infections has been below 20,000 for 46 straight days and less than 50,000 daily new cases have been reported for 149 consecutive days.

“What it suggests is that the impact of the second wave, where a substantial fraction of Indians were infected, continues to manifest itself,” Menon told PTI.

“In addition, a stepped-up vaccination campaign has meant that more people are protected against severe disease, hospitalisation, and death,” he added.

In his view, the substantial number of people infected during the second wave from March to July this year is “the prime protective feature at the moment for India, while vaccines add to that protection”.

“A combination of a prior infection with a later vaccination may be even more protective than just the vaccination alone,” said Menon.

Many scientific studies suggest that people who become naturally infected with Covid and recover before vaccination develop “hybrid immunity”, better immunity than those who only have antibodies from vaccination.

Virologist Anurag Agrawal agreed with Menon, saying the low number of cases can be attributed to a high fraction of the population being infected by the Delta variant during the second wave, followed by most adults have received at least one vaccine dose further boosting the immune response.

“Serosurveys have shown that the majority of the population is likely to have been infected,” Agrawal, director of the CSIR-Institute of Genomics and Integrative Biology, New Delhi, told PTI.

It is a well-established fact that complete vaccination as well as previous exposure with SARS-CoV2, the virus that causes COVID-19, lead to a significant decrease in the severity of the disease, added immunologist Vineeta Bal.

Describing the slow decline in nationwide Covid cases as a “good sign”, she also pointed out that northeastern states, especially Mizoram, are still showing a continuing increase in the number of cases.

“Although the cases started rising in the northeast much later than the rest of the country, this shows that there might be small outbreaks or slow increase in cases in pockets or areas where immunisation has been poor and rate of infections over the past year or so was low,” Bal, from Pune’s Indian Institute of Science Education and Research, told PTI. “Unfortunately, such granular data is not available nationwide. Hence vigilance needs to continue, search for outbreaks needs to be in place along with necessary isolation and treatment facilities,” she cautioned.

The increasing number of cases in Europe and North America over the last month has been a matter of concern. For the last two years, India seems to have followed Europe in the Covid spike but many scientists feel that may not be the case this time and a third wave even if it does happen will be milder.

“If there was a spike looming in our future, we should have detected signs of it already,” said Menon.

According to Sitabhra Sinha, professor of physics at the Institute of Mathematical Sciences (IMSc) in Chennai, India’s “second wave” is the analogue of Europe’s “third wave” and the country may have “luckily” escaped that particular wave.

“I think the ‘third wave’ already came and went in mid-September. About whether we can expect another wave in the near future, no modeling study can really predict that given a large number of factors and the lack of hard data,” said the scientist.

Sinha, who has been tracking the reproductive number (R-value) for the country since the beginning of the pandemic, said there has been no post-festival spike at least at the national scale but there was a spike before the season set in.

R-value is the number of people getting infected by an already infected person on average.

Currently, Sinha said, only Mizoram and Jammu, and Kashmir among the states and UTs with over 1,000 active cases have R values that are substantially higher than 1. West Bengal has an R-value just higher than 1.

“However, while the states seem to be doing reasonably well, the major cities are mostly showing an increasing trend with Mumbai, Pune, Chennai, and Kolkata all having R over 1,” Sinha told PTI.

“So while the increase in cases seems to have so far been mostly contained in these urban areas, I would be cautious about how the situation is going to evolve as we go into the cold season,” he added.

The fourth national serosurvey in July by the Indian Council of Medical Research (ICMR) reported that 67.6 percent of people across India had COVID antibodies, providing them with a level of immunity against the virus.

According to officials, around 82 percent of the eligible population in India has received the first dose of the vaccine while around 43 percent has been fully inoculated.

According to Bal, the spread of asymptomatic or symptomatic COVID-19 during the second wave was possibly on a much bigger scale in India as compared to Europe.

“This is apparent from sporadic serosurveys though such generalisation is associated with difficulties. Vaccination coverage, especially that of the first dose, has significantly improved,” Bal said.

“Besides, the winter is not that severe, as in Europe, in many parts of the country. Based on this, my prediction is there might be some increase in cases in India in the forthcoming months, but it is unlikely to reach very huge proportions,” she added.

Agrawal said although the immediate future for the COVID-19 situation in India “looks fine,” the long-term future depends on multiple factors including new variants.

Meanwhile, a FICCI-EY Study said that localized strategies were necessary to address possible future Covid-19 waves

With the devastating second wave of Covid-19 receding and life almost returning to normal, it would be easy to once again ignore warning signs that a third wave is possible. Parts of Europe and the US are already in its grip and lockdowns are returning. The second wave had caught India unprepared. The country now needs to do everything possible to avoid repeating that costly mistake. India needs a future-ready and localized strategic plan to be well-prepared for surge loads in event of any subsequent COVID waves, according to a recently released FICCI-EY Report, ‘Prevent, Plan and Prepare: Strategies to win against the pandemic’

The report, led by Subhrakant Panda, Vice President, FICCI and Chair of the FICCI COVID Task Force, states any future strategy must ensure that the right level of care is being provided to patients and must include a specific action plan to cater to moderate COVID cases without overloading existing hospital bed capacities.

 “While  global data indicate that severe cases and hospitalization rates have come down over the last few months, given the erratic nature of the virus leading to a continued threat of new escape mutations and the precedence of multiple waves globally, it is imperative that the country’s policymakers, healthcare providers and the public continue to demonstrate a laser like focus on prevention, planning, and preparation for any sudden surge in incidence. Given the experience of previous waves, which led to the severe crisis of bed availability, the country must have a specific response strategy to address the need for surge capacity arising out of peak load situations in the pandemic, which though temporary are tempestuous in their immediate manifestation,” Kaivaan Movdawalla, Partner- Healthcare, EY India, said.

Sharing the highlights of the report, Panda said, “Given that most countries have faced COVID-19 pandemic in waves, it is imperative to prepare as well as plan appropriately for any future waves. India’s historic achievement of vaccinating 100+ crore people is a significant milestone in the country’s fight against COVID as both international and domestic experience has shown vaccines to be effective in significantly reducing the severity of infection and mortality.”

He said it was crucial that the general public does not develop ‘COVID fatigue’ and ‘vaccine complacency’ presuming that the pandemic is over”.

According to Srimayee Chakraborty, Partner- Healthcare, Business Consulting, EY India, a repeated peak of 4 lakh cases per day, would necessitate a mammoth requirement of 9 to 10 lakh beds to cater to moderate and severe cases, with shortages in over 200 under-served districts. “As part of their pandemic response plan, some countries have experimented with makeshift facilities to reduce the overwhelming burden on the existing hospital infrastructure. Intermediate or Transition Care Centers can be an effective low cost and scalable option to address surge capacity specifically for the management of moderate COVID cases. If the prevailing caseload continues, existing infrastructure would be able to absorb the demand for COVID beds and the requirement of surge capacity may not exist.”

Key highlights of the Report:

An analysis of Wave 2 reveals that nearly 9 to 10 lakh COVID beds (which was over 60% of the total available hospital bed capacity in India) were needed to cater to moderate and severe cases which led to a severe crisis of bed availability during the peak. This was further accentuated due to inequity in the bed capacity distribution across different states and districts which led to extreme shortages in over 200 districts. Given this learning, it is imperative that strategy for managing similar situations in the future must include a specific action plan to cater to moderate COVID cases without overloading the existing hospital bed capacities.

COVID Intermediate Care Centers (CICC) or transition care facilities could offer a potential low cost and scalable option to prepare for ‘surge capacity’ requirements. Seamless and effective management of patients and hospital resources can be enabled by a hub and spoke model wherein these centers are attached to or in proximity to a traditional hospital. Certain threshold parameters such as positivity rate, average occupied oxygenated beds, etc. can be pre-defined to serve as a potential trigger or inflexion point to determine the right timing to start creating these transition care facilities.

Localized preparedness plans

While at a country level we experienced two distinct waves, localized wave patterns were observed when data were studied at a state or district level. Given this variation, a highly localized plan instead of a common nationwide plan may be critical to designing an effective pandemic response in case of subsequent waves.

Learnings from international experience of the third wave

The UK has shown a reduction in the severity of the cases i.e., lower hospitalizations and mortality due to effective vaccination coverage.

A few states in US and Indonesia are witnessing an increase in incidence in the pediatric population. Given that the majority of the population under 18 years is presently unvaccinated, they would be amongst the most vulnerable groups which could be impacted in the event of a third wave.

Relaxation of lockdown restrictions is being seen as a possible reason for spikes in cases in Indonesia and Israel. Signs of waning immunity are also being observed in Israel which has witnessed a nearly doubling of peak cases per million in Wave 3 compared to Wave 2.

Transition care centers offer a scalable option to meet surge capacity requirements

Moderate cases not requiring immediate critical care can be managed in a transitional care facility with provisions for oxygenation. These transition care centers could help free up beds and resources in hospitals to be utilized for more severe cases.  Prioritization and stage gating basis patient acuity would be critical to ensure that the right level of care is provided to patients who need it the most.

Continued focus on vaccination and focused mobility restrictions

While government interventions in building an effective response plan to meet subsequent possible waves are imperative, it is crucial that the general public continues to be cautious and does not develop ‘COVID fatigue’ and ‘Vaccine hesitancy’ presuming that the pandemic is over. Since daily case numbers have been consistently low in the last few months, people may be susceptible to an ‘exponential growth bias’ tending to believe that even if there is a third wave, cases will grow only linearly. With the end of year festival season has already commenced, it is important that mobility restrictions and controlled social gatherings are continued to be imposed by governments. An equally important role needs to be played by the general public who must not show apathy to these measures while coming forward for vaccination and strictly adhering to safety guidelines including social distancing and wearing masks.