{{ subpage.title }}
COVID-19 holiday update: The latest on the Omicron variant
COVID-19 holiday update: The latest on the Omicron variant
Omicron first crossed our radar in late November. At the time, we heard “in two weeks we will know more,” and it’s now been about four weeks. Do we know more?
Yes we do. Particularly for two out of the three big questions (transmissibility, vaccines, severity).
On transmissibility, we know that Omicron is spreading really fast. In South Africa, the case curve had a steeper upward slope than any of that country’s previous waves. But there wasn’t a lot of Delta (or any other variant) around during that outbreak, so it was hard to tell what Omicron would do when it faced off against Delta.
Want to understand the world a little better? Subscribe to GZERO Daily by Ian Bremmer for free and get new posts delivered to your inbox every week.
Now we know. Omicron is quickly outcompeting Delta in North America, Europe, and likely many other parts of the world in the coming weeks.
On vaccines, what was once an expectations-defying story has been downgraded to just a very good story. If you think back to 2020 B.V. (Before Vaccines), you may remember that many experts said the best we could really hope for was a vaccine that greatly reduced the risk of severe illness and death. Stopping asymptomatic or mild infections was considered unlikely. Then the mRNA trial data was released, those vaccines were rolled out in a number of countries, and the vaccines not only reduced the risk of going to the hospital, but they also prevented people from getting infected and transmitting the virus to others.
In moderately vaccinated countries, cases plummeted alongside hospitalizations and deaths—until they didn’t. As time went on, protection from severe illness remained high while more mild breakthrough cases started to emerge—first with Delta, and now much more so with Omicron.
So the vaccines are still doing what we hoped they would do in 2020, but that early 2021 vaccine euphoria is getting dampened—a lot of vaccinated people are testing positive, typically with mild illness. And higher risk people (the elderly, the immunocompromised, those with underlying conditions) that have been vaccinated are still sometimes getting severely ill (albeit less frequently than before). Most concerningly, Omicron is incredibly good at finding unvaccinated people, so even in moderately- to highly-vaccinated places, the risk of overwhelmed hospitals remains elevated.
But isn’t Omicron causing more mild illness?
The question around illness severity for Omicron remains the trickiest and most contentious. But we do know more than we did a few weeks ago. The news is relatively positive but still a little difficult to parse.
From lab studies, there is evidence that Omicron isn’t as good as previous variants at replicating in the lungs, where severe illness is more likely to occur. And from real-world data, we can be pretty sure that South Africa’s Omicron outbreak is causing less hospital strain and fewer deaths than previous spikes did. There are some positive signals coming out of the UK as well, but it is earlier days there, and the hospitals are already strained due to widespread Delta transmission.
But the oft-repeated caveat still stands: “A small portion of a very large number is a large number.” In other words, Omicron is spreading far and wide and causing at least some severe illness and death, suggesting that a raging outbreak that spreads faster than ever could still put a serious strain on hospitals in the coming weeks, particularly if the most optimistic scenarios are overstated and Omicron hits healthcare workers already pushed to the brink.
And it is still difficult to ascertain whether the positive real-world data is due primarily to more people having protection from vaccination and/or recent infection, or to the variant being “intrinsically” less severe than its predecessors and therefore less of a risk to the immunologically naïve (i.e., people who haven’t been infected or vaccinated). The answer to this question is not merely academic—if this variant is as dangerous for the unvaccinated and uninfected, the damage around the world could be severe, particularly in developing countries with little ability to cushion the economic blow of more outbreaks and restrictions.
Can you at least tell me when this wave will end?
This variant seems to be on a super-charged timeline, as the time from infection to symptoms and transmission seems faster than previous waves. In South Africa, just as the way up was very fast, so was the way down. And it’s possible we will see something similar in Europe and the US. But it’s unlikely it will all happen in tandem.
Importantly, more bumps in the road aren’t out of the question—the most concerning of which is the record-setting level of pediatric hospitalizations we’re seeing in parts of the US. Headlines around this story are definitely troubling: if this virus turns out to be hitting children harder than before, that would be a gamechanger.
Of course, context is important. Some of these trends started before Omicron, and hospitalizations are still overwhelmingly in unvaccinated children. So it may just be evidence that this outbreak is larger than ever in this group due to the resumption of pre-pandemic behavior. In other words, risks for children may be the same and still considerably lower than for adults, but the outbreak is now so large amongst this mostly-unvaccinated cohort that we’re going to see spikes in hospitalizations like we’ve never seen before.
Regardless, we’re seeing unprecedented case numbers across all age groups, and record-setting holiday travel suggests this pattern isn’t going to reverse itself just yet—even if that isn’t always reflected in official numbers due to testing shortages in places like the US.
What about the new treatments we keep hearing about? Could those put a definitive end to this nightmare?
Help is certainly on the way in the form of more treatments that are easier to administer than previous treatments like Remdesivir and monoclonal antibodies. Paxlovid from Pfizer remains the best hope for cases that are identified early, which adds even more urgency to solving the current testing shortages in the US.
Supply will be limited in the coming weeks so we probably won’t see these treatments make a big dent in the current surge. By late January, however, that could change. And it could be a harbinger of things to come in many countries around the world as they manage the bumpy transition to “living with the virus.”
New treatments like Paxlovid plus more vaccinations plus protection from previous infection could equal less strain on hospitals and a transition from a state of emergency to a long-term disease management approach to Covid.
Not every country will reach that point at the same time—emerging markets with low to moderate levels of vaccination and limited access to new treatments will once again be at the back of the line. And projections around this built-up wall of immunity have been proliferating for many months now, and they’ve been wrong every time (remember when Sweden was going to hit herd immunity in May 2020?). This time very well could be different. But surprises can’t be ruled out, as much as we all wish they could.
Could Omicron end up being a good thing?
It depends entirely on your time horizon.
In the short term, with hospitalizations still rising and all sorts of economic disruption mounting (e.g., massive flight cancellations), it’s hard to see this Omicron surge as anything but a bad thing.
In the medium term, it’s quite possible that this really does turn out to be the “exit wave” that we’ve discussed numerous times before, particularly for highly vaccinated countries. If Omicron is able to totally outcompete Delta (which remains uncertain) and turns out to be a much smaller threat to healthcare systems, then Omicron could ultimately be a good thing.
What would need to happen for the US to go back into strict lockdown?
A time machine to take us back to early 2020? A massive Ebola outbreak? Other than that, it’s hard to imagine most states going into anything resembling a strict lockdown.
At the peak of the US response in March/April 2020, even the strictest states only imposed “soft lockdowns” compared to what other countries did. In blue states, if you had parking lots filling up with very young Covid patients, you could imagine the return of indoor capacity restrictions, more mask mandates, hybrid education, etc. None of that really qualifies as a lockdown. China’s response to outbreaks qualifies as a lockdown.
Overall, pandemic fatigue is very high and the appetite for restrictions remains very low across much of the US. I don’t see that changing as we enter the third year of this pandemic.
Speaking of China, I’ve seen some data showing that even 3 doses of Sinovac might be ineffective against Omicron. What would this mean for China and for the global economy?
Sinovac does appear to be ineffective against infection. But it’s a difficult question to answer at this point because we still don’t have a great understanding of what that means for severe illness. Right now it’s probably safe to assume that these vaccines will be at least OK on this front but a little less OK than other vaccines on the market (similar to what we saw with Delta).
Even small differences in effectiveness would mean that countries that have been relying on Sinovac vaccines could see more explosive case spikes than those depending on mRNA vaccines (which are already seeing case spikes of their own due to reduced effectiveness against infection and transmission). This could once again strain hospitals in countries with already limited healthcare capacity (e.g., Indonesia). Many countries had already been diversifying away from Chinese vaccines for exactly this reason, and this data—if confirmed—will continue that trend.
In China, it means that the vaccines themselves won’t do much to stem a potential Omicron surge, meaning Beijing will continue to rely on its stringent “Zero Covid” strategy. This approach was always more focused on “NPIs” (non-pharmaceutical interventions), so Beijing will stick with that until it’s at least able to stock up on enough mRNA boosters and treatments like Paxlovid that can further reduce the risk of severe illness. That’s likely a number of months away. And the 20th Party Congress will convene in October 2022. Beijing has touted its Covid success as an example of its superior governance philosophy, so even small outbreaks before then are going to be seen as politically unacceptable, meaning risks of social and economic disruption in China—and therefore the global economy—will be with us for much of 2022.
🔔 And if you haven't already, don't forget to subscribe to my free newsletter, GZERO Daily by Ian Bremmer, to get new posts delivered to your inbox.
Inflation is at 30-year highs. You can blame the pandemic for it.
Inflation is at 30-year highs. You can blame the pandemic for it.
Today’s post will look at the first two questions—what’s causing it and when it’ll go away. A second post tackles the rest.
A look at the numbers
According to the Bureau of Labor Statistics, consumer prices in the US were 0.94% higher in October than in September, rising 6.2% over the past year. After a decade of low inflation, this is the fastest 12-month pace since 1990 and the fifth consecutive month with inflation above 5%.
Want to understand the world a little better? Subscribe to GZERO Daily by Ian Bremmer for free and get new posts delivered to your inbox every week.
Part of this story can be explained by energy and food prices, which are up 30% over the last year globally. Despite what you might have heard, these have nothing to do with “Biden shutting down the Keystone XL pipeline” or levying a “Thanksgiving tax.” (Neither of those things exists.)
The truth is that oil and gas prices, which are set in international markets, have been climbing because of increased global demand as the world economy recovers from the pandemic. Fears about gas shortages across Europe and Asia ahead of the winter, combined with a slowdown in Chinese coal burning and OPEC+ oil producers’ refusal to increase supply by enough to meet the demand surge, have all contributed to the energy crunch.
Similarly, prices of food products traded internationally (including vegetable oils, cereals, sugar, meat, and dairy) have soared as high global demand has been met with supply constraints caused by the pandemic, extreme weather events, and political instability.
But core US inflation, which excludes energy and food prices, still rose 4.6% over the past year, the fastest pace since 1991. This has been driven by rising prices of goods, especially durable goods like cars, furniture, and appliances, which have increased by over 10%. In comparison, services prices are subdued and played no part in inflation over the last year (although they have been picking up since April on the back of an improving public health situation).
Blame lies with the pandemic, not policy
Conservative pundits have been flooding the airwaves claiming the Biden administration stoked inflation by injecting too much stimulus into the economy, causing there to be “too much money chasing too few goods.” Does that mean that inflation is the result of bad policy?
The data says no.
When the pandemic hit, large parts of the economy were forced to shut down. The virus disrupted every activity that required in-person interaction, including manufacturing operations, services like gyms, restaurants, travel, schools, etc., and jobs that couldn’t be done remotely. Lots of businesses were shuttered, millions lost their jobs.
The US government responded by giving people and businesses a ton of money to pay their bills, avert mass bankruptcies, and prevent another Great Depression. This was smart, and wildly successful. Poverty actually declined, disposable income and household saving increased to record-highs, and asset prices boomed.
Because they couldn’t spend the extra cash on things like haircuts, travel, or restaurants, Americans turned to at-home consumption, ordering everything from gym equipment and office furniture to loungewear and gardening tools. In other words, the government’s necessary and successful response to Covid amid pandemic lockdowns triggered a consumption boom that saw demand for goods rise way above pre-pandemic levels—even though millions of jobs had just been destroyed.
Consumer spending has been uneven since the pandemicFederal Reseve Bank of St. Louis
Awash in new orders, global supply couldn’t keep up. Not only had Covid disrupted manufacturing, logistics, and distribution operations, but every link in the chain had braced for a prolonged slump.
Global supply chains are deliberately designed to be lean, prioritizing efficiency over resilience. Usually it works well, but when (for whatever reason) demand exceeds normal supply levels, they have no spare capacity. As a result, rather than increase output and employment, additional spending causes prices to rise.
That’s exactly what happened in the face of what was a historically unprecedented, and wholly unexpected, surge in demand for goods. The mismatch between Americans’ voracious appetite for stuff and the world’s ability to sate it manifested in shortages, soaring costs, and rising prices. The bottlenecks showed up throughout the supply chain, from raw materials and intermediate goods to freight transport and warehousing. Snarls upstream caused shortages downstream, increasing costs and prices along the way.
Will US kids get their toys on time?Institute for Supply Management, Case Statista, GZREO Media
When vaccines rolled out and economic activity picked up, labor demand boomed and previously unemployed workers started coming back from the sidelines, boosting demand even further. But not everyone came back. Some workers retired early or left the workforce to care for their children. A few decided to hold out for better opportunities and could now afford to because of the pandemic relief. Most importantly, a record number of predominantly low-wage workers began quitting their jobs en masse, encouraged by the highest-ever job opening rate on record.
The effect of this “Great Resignation” has been a labor shortage, concentrated in low-paying occupations, that is forcing employers to finally compete for workers. In turn, this increase in labor costs has been passed on to consumers in the form of higher prices.
To recap:
- Rising food and energy costs, including gas prices at the pump, are a global phenomenon caused by the pandemic and its global aftereffects.
- The policy response to the pandemic was appropriate and effective at sustaining aggregate spending and preventing a lot of unnecessary suffering. While the economy is doing well, it is by no means overheating, as evidenced by the fact that GDP is still 2.6% below its pre-pandemic trend and employment hasn’t fully recovered.
- Rising prices of goods are a direct result of the pandemic, which shifted the composition of spending away from services and toward goods, destroyed productive capacity, disrupted supply chains, and reallocated labor.
- Inflation is being exacerbated by bottlenecks that were waiting to happen, predating the pandemic but triggered by it. For example, the ground shipping industry had been lowering trucker pay and eroding worker protections for decades. Now there’s a massive trucker shortage preventing goods from moving from ports to warehouses to retailers to your doorstep.
- Taking the pandemic’s effects on consumption patterns and supply chains as well as the latent vulnerabilities in our just-in-time mode of production as given, high inflation was the price to pay to prevent suffering on a scale not seen since the Great Depression. No alternative policy response could’ve gotten the best of both worlds.
Let's see who this really is... |
The story is roughly the same outside the US. Last month, consumer prices jumped 1.1% in Britain and 0.7% in Europe. Even Germany, which unlike the US didn’t respond to the pandemic with large-scale fiscal stimulus, has seen inflation rise to 4.6% over the past year. If this doesn’t convince you that inflation is mainly about the global pandemic rather than US policy choices, I guess nothing will.
When will inflation let up?
The jury is still out on this one.
There are a few reasons why inflation could in theory remain elevated for a while. A strong labor market, still-high disposable incomes, and accommodative monetary policy could continue to sustain high demand. The price of services like travel, hospitality, and restaurants will accelerate as booster shots encourage people to go out. Supply chains may take some time to return to normal, given how sticky they have been. The great resignation could persist, making labor scarcer and putting upward pressure on wages. If inflationary expectations set in, workers might demand higher pay to keep up and consumers may start to frontload spending, in turn accelerating wage and price inflation… Again, not implausible.
But there are also compelling reasons to think inflation will come down on its own soon, as the factors that caused it begin to ease. The bulk of the fiscal response to the pandemic is over, so spending levels will return to normal. As the pandemic abates and the economy reopens fully, consumption will swing back toward services and away from goods, workers will return to work, and supply chains will untangle. Once Covid treatments and vaccines are available everywhere, new outbreaks will stop causing supply disruptions and unbalanced demand.
Shipping costs are recedingStatista
We are already seeing these dynamics play out in the data. Consumption patterns are shifting back towards services, with durable goods expenditures falling by 8% since April and inventories surging. Bottlenecks are starting to unwind, with the Baltic Dry Index, a measure of global shipping rates, plunging 50% since October. Container traffic at the Port of Los Angeles is down 30%. The International Energy Agency says oil prices are about to peak.
On balance, the evidence suggests inflation will come down gradually over the next year. The trillion-dollar question is what happens in the meantime. Read my next post to find out.
🔔 And if you haven't already, don't forget to subscribe to my free newsletter, GZERO Daily by Ian Bremmer, to get new posts delivered to your inbox.