Omicron risk, China slowdown threaten to derail recovery

Omicron risk, China slowdown threaten to derail recovery

KUWAIT: A combination of worries over the emergence of the Omicron virus strain, increasing virus-related restriction measures across Europe and slower growth in China have threatened to knock some of the momentum from the global economic recovery of late. Key equity market indices in the US, Europe and Japan all fell 3-5 percent in November, although remain up significantly year-to-date. At the same time, anxieties over rising inflation driven by strong demand, loose policy and supply bottlenecks have intensified (especially in the US and Europe).

Indeed, for most major western central banks, high inflation has become the dominant concern and the US Fed in particular looks set to accelerate its policy tightening program imminently – that is unless the worst of the latest concerns about Omicron (and its potential impact on economic activity) materialize. Oil prices also dropped sharply in late November, from $80 to temporarily below $70, though have since partially recovered. OPEC+ opted to stick to its production increase schedule, despite expectations that it might pause given the risk of softer global oil demand.

Fed seen accelerating tapering

US economic growth slowed sharply in Q3 amid the ongoing supply chain shortages and the spread of the Delta variant. GDP growth for