Bloomberg / Washington/New York
The US economy will take an early hit this year from the Omicron variant of coronavirus – but the damage shouldn’t last beyond the first quarter, according to Bloomberg’s latest monthly survey of forecasters.
Expectations for growth in gross domestic product for the January-March period dropped to 3%, from 3.9% in the previous monthly survey. Forecasts for inflation, however, were marked up for each quarter into 2023, reflecting prolonged problems with supply chains that risk being exacerbated by Omicron.
The new pandemic wave has upended travel and contributed to empty supermarket shelves in some areas, as workers call in sick. The latest virus disruption also comes as the economic boost from government aid is fading.
“Growth momentum does appear to be stalling out,” Aneta Markowska and Thomas Simons at Jefferies wrote in a report this week, predicting a 1.5% first-quarter expansion.
Among other indicators, they point to a sharp decline in office occupancy that’s reversed almost all of last year’s back-to-work drive, and will “create negative knock-on effects in the near term as demand for services takes a hit.”
Still, the Jefferies economists – like most of their peers – remain relatively upbeat about growth in subsequent quarters.
The median forecast in the Bloomberg survey calls for growth to average 3.8% this year, down just 0.1 percentage point from a month earlier. The economy’s latest virus-induced slowdown is apparent across a range of high-frequency data. Restaurant bookings, which had more or less climbed back to pre-pandemic levels before Omicron’s arrival in late November, are down about 30%.
Delta Air Lines Inc said on Thursday that sick employees, as well as winter storms, caused more than 2,000 flights to be cancelled in recent weeks. But the carrier said that it expects the Omicron wave to peak in the next few days, with revenue forecast to rebound within about four to six weeks after that. In the Bloomberg survey, economists marked down their first-quarter expectations for all the key contributors to growth, including consumer and government spending, business investment, and exports.
Inflation estimates, meantime, were raised for each quarter of the year. In part, that’s likely a consequence of the Omicron effect on already-snarled supply chains, with more factory shutdowns possible in Asia, and already-tight labour markets at home.
Consumer prices rose 7% last year, and the Bloomberg survey suggests that any slowdown in the coming months will be limited, with second-quarter inflation seen at 5.2% rather than the 4.8% projected a month ago. Forecasts for the Fed’s preferred measure of inflation, the personal consumption expenditures index, were also boosted. The central bank is increasingly expected to raise interest rates from zero at its meeting in March as it seeks to rein in price pressures.
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