In another scenario, they assume that the combination of fear of the virus, the restrictions and limitations of persistent supply chains lead to less dynamic consumer spending. Service sector activities, such as leisure, hotels and travel, are hit the hardest, creating a 1 percentage point annualized drag on GDP growth in the first quarter. Here they foresee that part of the lost activity will recover in spring and summer (in the northern hemisphere), thus raising GDP growth in the second and third quarters. In this scenario, the economy grows 4.4% in 2022.
While in its severe negative scenario, an increase in infections, hospitalizations and deaths leads to a persistent fear of the virus and the re-imposition of strict restrictions. Limited scope for additional fiscal and monetary policy stimulus and a pronounced tightening of financial conditions cause a more significant hit to the US economy, with GDP growth falling below 2% in 2022.
Inflation
On the other hand, from OE they point out that there continues to be a high degree of uncertainty around the inflation outlook and the new variant of Ómicron will feed that uncertainty. On the one hand, the Delta variant showed how inflation dynamics have remained pro-cyclical with lower price pressures in sectors where activity is decelerating. As such, weaker demand for goods and raw materials could be disinflationary, especially if it is exacerbated by financial markets. Still, they also know that if demand for goods remains strong and the Omicron variant leads to exacerbated restrictions in the supply chain and labor supply, these could turn out to be inflationary, they warn from OE. They also consider that a key determinant of the economic and inflation impact of a new variant of covid would be the political response. They believe lawmakers would resist the temptation to pass new stimulus measures unless the COVID-19 situation deteriorated to a significant degree. On the Fed front, the Omicron variant will impart a moderate lean to policy, but they do not expect a major turnaround without a severe deterioration in the economic outlook.
Latin America
As for the Latin American region, the emergence of omicron risk implied a recalculation of the quarterly estimates of GDP for 2022 in light of the downside risks caused by the increase in the new variant. They now expect a softer start to the year before production recovers slack later in 2022. Overall, their 2022 GDP growth forecast for the region – taking the top 6 countries – remains virtually unchanged at 2 %. This is a substantial slowdown, as most countries will find it difficult to maintain momentum once they surpass pre-pandemic production levels. In this way, they cut the first quarter GDP growth forecast for the region to only 0.1% quarterly from the previous 0.3%, but raised the average growth in subsequent quarters to 0.5%.
Source From: Ambito
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