Omicron warning: Variant threat to global financial recovery – supply shortage fears surge

Omicron: 'More breakthrough infections' says South African doctor

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The warning comes as the Organisation for Economic Co-operation and Development (OECD) published their latest report on economic outlook, downgrading global growth forecasts to 5.6 percent – from 5.7 percent. While the report points to growing recovery for many countries, this is potentially fragile with a number of key risks. According to the OECD, labour forces remain highly imbalanced with many people struggling to find jobs – while businesses are having the same difficulty recruiting workers. The organisation also warns the global rebound is “losing some momentum” due to bottlenecks in supply chains.

One particular area cited is the car industry which has been hard hit by a global shortage in semi-conductors.

Recent figures for car production in the UK for October found output at its worst for over 50 years.

There is particular concern a worsening of the Covid situation could cause further issues, with the report warning: “Existing supply disruptions could continue to be more severe, prolonged and widespread than expected, or new sources of bottlenecks could emerge.

“The most likely cause of such a continued impairment of supply chains is a worsening of COVID-19 dynamics.”

The new Omicron variant has put this question further into focus.

OECD chief economist Laurence Boone told the Financial Times the new variant is “adding to the already high level of uncertainty and that could be a threat to the recovery, delaying a return to normality or something even worse.”

The OECD are also concerned about the impact of supply chain issues and rising energy prices on inflation.

The report warns inflation could now be the main risk to recovery, warning of the problems if “inflation continues to surprise on the upside, forcing the major central banks to tighten monetary policy earlier and to a greater extent than projected.”

It predicts inflation will peak by the end of this year at around five percent across OECD economies – before falling to around 3.5 percent by the end of 2022.

Inflation in the UK is currently at 4.2 percent whilst the Eurozone recently saw inflation soar to 4.9 percent.

Both the Bank of England and the European Central Bank have targets of two percent.

The OECD warns: “The renewed inflationary pressures risks lasting longer than was expected a few months ago.

“Rising food and energy prices are hitting low-income households in particular.”

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For the UK, the OECD concluded vaccination had supported recovery – with the economy expected to reach pre-Covid levels by the beginning of 2022.

As in other countries though, inflation will be a risk with forecasts of a peak of 4.9 percent in the first half of 2022.

While the OECD found good signs of recovery in many countries , it is warning that this is imbalanced with countries with low vaccination rates at risk of being left behind.

Developing countries with lower vaccination rates may struggle with rebuilding their tourism industries.

The report predicts delivery of vaccines to emerging and developing economies should expect to improve steadily in 2022 and 2023.

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