Omicron: Will the Virus Wave Pattern Repeat?

As we wrote about in our 2022 Global Outlook, COVID-19 is becoming endemic rather than pandemic. We anticipate a winter wave of COVID, potentially with new variants like omicron.

Policymaker responses are likely to determine the variant's economic and market impact. Although some countries were already taking some steps to slow winter outbreaks, we haven't seen new lockdowns in response to omicron. At the same time, more countries—especially those in Europe—are moving toward mandatory vaccination requirements, potentially giving a boost to stalled vaccination rates. Some new measures that governments have announced in the past week to try to combat the virus include:

• Germany announced on Thursday that only vaccinated (or recovered) people will be allowed into restaurants, theaters, and non-essential stores. A vaccine mandate, backed by new Chancellor Olaf Scholz, will go to a vote in parliament in the coming weeks.
• In Greece, the government is making vaccines mandatory for all citizens over age 60. Beginning in January, the unvaccinated must pay a fine of 100 euros ($113) every month for non-compliance.
• Austria, burdened with one of the lowest vaccination rates in western Europe, will remain in lockdown until December 12. At that time, it will be lifted specifically for the vaccinated and those recently recovered from the virus. The unvaccinated can still go to work, contingent upon a negative COVID test. Officials are also working on plans to impose mandatory vaccinations, to begin in February.

Vaccination rates had been stalling prior to omicron

It's been only a few weeks, but so far, these policies don't appear likely to derail above average global growth. In fact, omicron does offer a potential reason for central banks to reconsider the pace of rate hikes in the coming months. This suggests the awaited December rate hike by the Bank of England (BoE) may get pushed out yet again. Market-based odds of a BoE rate hike at the December 16 meeting went from over 50% on Nov 24, the day before the omicron news, and has since plunged to around 20%, as you can see in the chart below.

Omicron changes odds of a December rate hike