The impacts of the Omicron variant are already being felt, but experts expect economies like Australia’s to pull through new headwinds.
According to a report by the Blackrock Investment Institute, “the Omicron strain appears less severe in populations with high vaccination and immunity rates”.
Blackrock said that they expect the spread of Omicron to delay, rather than derail, the restarting of regular economic activity across the world.
Pointing to the successes of vaccine programs globally, the report predicted a surge in cases but a “more muted rise in hospitalisation”.
According to Blackrock, “the big picture on Omicron remains that we see it only delay the powerful global restart. Less growth now means more growth later, in our view.”
If anything, the report flagged the interactions between the short-to-medium-term disruptions of Omicron and broader economic shifts as a bigger threat.
“Policymakers and markets may misread the unique mix of the restart, a mutating virus, supply -driven inflation and new central bank policies,” Blackrock said.
Alongside the ramifications of Omicron, another big investment theme called out here is the need for markets to learn to live with inflation.
Ultimately, Blackrock expects that inflation will sustain and settle higher than pre-pandemic levels.
“We expect central banks to kick off rate hikes but remain more tolerant of price pressures, keeping real interest rates historically low and supportive of risk assets,” the report said.
“We see the restart rolling on, inflation meeting a muted central bank response and real rates remaining historically low.”
In addition to rising inflation, Blackrock warned of the potential for risk markets to misread China in 2022.
“The country has emphasised social objectives and quality growth over quantity in regulatory crackdowns that have spooked some investors.
“Yet policymakers can no longer ignore the growth slowdown, and we expect incremental loosening across three pillars: monetary, fiscal and regulatory,” the report said.
