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Economic recovery could still surprise despite Omicron spike

Manu Bhaskaran
Manu Bhaskaran1/13/2022 5:14 PM GMT+08  • 10 min read
Economic recovery could still surprise despite Omicron spike
"The eventual rebound in global activity will be much stronger than expected": Bhaskaran.
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The emergence of the Omicron variant of the Covid-19 virus has dented the hopes that 2022 would be the year when we would finally put the pandemic behind us. Infections are surging at an alarming rate in many countries, governments have had to re-impose some restrictions and economic activities have slowed as workers report sick or as people cut back on going out. Yet, financial markets have taken the news in their stride, believing that the impact will be short-lived — even though this pandemic has frequently upset the optimists.

We think the markets are right to look beyond the Omicron infection spike. More than that, we believe that the eventual rebound in global activity will be much stronger than expected. This is not only because we see the pandemic’s effects on the world economy becoming less and less malign with time. The additional upside will come from the growing impetus for companies to move ahead with business development plans that had been suspended or delayed by the pandemic.

This upbeat view does not ignore the downside risks such as a sharp slowdown in China or potential damage to economic vigour from monetary tightening in the US and elsewhere. Those risks need to be watched carefully but we believe that they are likely to be contained.

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