Omicron Variant May Be Good For Economy

The omicron variant of Covid-19 has sparked great fear. With time, we may find the fear to have been justified, but we may find the opposite: that this is good news for the economy.

It’s still early days for our knowledge of omicron. Waiting to learn more seems to make sense, but consider this: Business decisions are being made every day. Any person who waits for perfect certainty—about the economy, technology or Covid-19—will never make a single decision. In many areas decisions have to be made this week. So it’s worthwhile to consider how omicron may be good for the economy.

Omicron seems to be displacing the delta variant in South Africa. Ted Wenseleers showed that delta’s share of total Covid-19 cases in South Africa has plummeted while omicron has surged, leading many to expect it to displace the delta variant around the world.

So far omicron seems no worse than delta in how sick people become, with a possibility that it will be less lethal. Many viruses in the past have evolved to be milder, because killing the host does not help the virus spread. This is the upside for the economy.

The omicron virus may have mutated so that it has greater ability to infect those who already had been exposed to earlier variants or been vaccinated. Greater volume of total infections is the economic downside.

From an economic forecasting viewpoint, business leaders should consider the upside potential of omicron. Although it is way too early to be sure, we may find that the Covid becomes dominated by a less dangerous mutation. Illness would continue if this happens, but with fewer deaths and hospitalizations. People would come to feel more comfortable dining out, traveling and seeking routine non-Covid healthcare tests and procedures. This rosy view is far from certain.

The economic damage from Covid falls into three categories: direct damage, regulatory damage and voluntary damage. The direct damage to the economy comes from loss of labor availability and the cost of protections against infection. Regulatory damage comes from shelter-in-place orders and other restrictions on economic activity. (The regulations may be worthwhile despite the cost; that’s another issue.) Finally, voluntary damage occurs as people choose to avoid social situations such as restaurants, travel and concerts.

If a variant causes less direct damage per infection, then as people miss less work and spend less on precautions against infection. However, an offsetting factor may be more total cases because of greater transmission. The net impact on the economy could go either up or down.

Regulatory damage is a political question and could go also go in either direction.

Voluntary damage is likely to be less severe if people are less worried about this variant. Popular reaction seems to reflect severe risks rather than the mild risks. Again, though, the greater transmissibility could offset less severity.

The greater transmissibility of omicron seems a likely conclusion as of this writing, while the lesser severity is mostly speculative.

Companies that that are especially sensitive to the Covid pandemic should try to delay big decisions. We’ll have better information in the coming weeks. But decisions that cannot be delayed should probably consider the possibility of a stronger economy rather than greater Covid problems.