Due to the Omicron variant... a short-term soft patch is coming early next year

[Photo by AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Amid ongoing debates about the economic impact of the Omicron variant, forecasts suggest that economic damage early next year is inevitable.

The Wall Street Journal (WSJ) reported on the 27th (local time) that the highly contagious Omicron variant is expected to cause a short-term soft patch?a temporary pause in economic recovery?in U.S. consumer spending and broad economic growth.

Although the Omicron variant is considered less severe than the existing Delta variant, its extremely high transmissibility makes a short-term contraction in economic activity unavoidable. While U.S. year-end consumption has been robust, WSJ anticipates that after the festive year-end period, companies will still face difficulties securing labor, and consumers will refrain from going out to avoid the Omicron variant.

In the U.S., the Omicron variant led to the cancellation of about 1,000 daily flights during the Christmas holiday. Over 3,000 flights were canceled from December 24 to 26, and 1,090 flights were canceled on the 27th. In the UK, where daily new COVID-19 cases are increasing by 100,000, 9 out of 10 new cases have been confirmed as Omicron infections. There is also a possibility of stricter lockdown measures after the year-end. Scotland, Wales, and Northern Ireland have limited gathering sizes and strengthened quarantine measures for restaurants and other venues starting December 26, the day after Christmas.

Mark Zandi, Chief Economist at Moody's Analytics, significantly lowered the U.S. first-quarter growth forecast from 5.2% to 2.2%. Economist Zandi warned that economic damage could worsen in the first quarter of next year.

There is also speculation that economic activities scheduled for the first quarter may be postponed to the second quarter due to Omicron. Consulting firm Pantheon Macroeconomics lowered its U.S. economic growth forecast for the first quarter of next year from 5% to 3%.

Ian Shepherdson, Chief Economist at Pantheon, said, "The highly contagious Omicron is changing people's behavior," adding, "As people stay home, service spending, which accounts for a large part of the economy, will contract."

This content was produced with the assistance of AI translation services.