The Omicron variant of the coronavirus that emerged in southern regions of Africa has sparked worldwide alarm considering its unusual set of genetic mutations (1).
Over 50 mutations include over 30 on the spike protein (S-protein) – the exposed part of the virus that binds with human cells, also known as antigens. It makes the variant more transmissible compared to the dominant Delta variant. It is also more likely to evade the immune protection humans have conferred via previous infection or vaccines.
Understanding Concerns About Omicron
Scientists are concerned about Omicron because of two primary reasons:
- Epidemiological related to the rate of transmission at which the variant, first detected this month, spreading in South Africa
- Omicron’s highly unusual genetic profile
The conventional PCR tests can detect Omicron from Delta and other variants without full genome sequencing with its distinctive mutation pattern.
Notably, in South Africa, Omicron is transmitted rapidly, especially in the Gauteng province, including cities like Pretoria and Johannesburg. And according to available data, Omicron is responsible for over 90% of coronavirus infection cases in Gauteng.
Simultaneously, wastewater analysis in Pretoria (2) to find traces of the Sars-CoV-2 virus as an indicator of the outbreak size suggested that infections had surged almost the same levels as last seen during the Delta wave six months ago.
According to Jeffrey Barrett, the director of the COVID-19 Genomics Initiative at the Wellcome Sanger Institute (3), the strain is “an unprecedented sampling” of mutations from four previous variants of concerns: Delta, Gamma, Beta, and Alpha. There are other genetic changes not visible previously. Hence, their significance remains unknown as of now.
What is more worrying, stated Jacob Glanville, a computational immunologist and founder of Centivax, a US-based therapeutic company (4), is that 15 of the mutations were on the “receptor binding domain,” which acts like a grappling hook for the virus to enter human cells.
Remember, mutations help the virus circumvent the body’s immune defenses – trained by vaccines or previous infections to fight the infection.
With only three mutations in the region, the Delta variant had reduced the effectiveness of the vaccines. By comparison, the Omicron variant has 50.
In an Omicron briefing on Monday, 29th November, Jonathan Van-Tam, the deputy chief medical officer in England, stated that it was “likely” to impact the vaccines’ effectiveness (5).
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The Emergence of Omicron
As Sars-CoV-2 replicates itself, any errors in the copying process often change some of the 30k biochemical letters in its genetic code. It has a typical rate of two mutations a month.
While Omicron was first detected in samples from Botswana and South Africa, its origin and how it accumulated so many mutations remains unknown.
Many scientists believe that the variant is likely to have evolved from a single individual whose immune system was compromised via disease or medical treatment.
According to a genomic research expert at Geneva-based biotech company Sophia Genetics, Slawomir Kubik (6), most of Omicron’s mutations have come “completely out of the blue.” They have never been observed in other strains.
Hence, scientists have no visibility of what these new mutations do or how the virus works, says Kubik. He further added that we would find more about it once it started to spread more widely.
So far, we know that some of these mutations have led to increased transmissibility. And changes in the genetic code have made it harder for our immune systems, trained by previous infections and existing vaccinations of other variants, to handle the new strain. However, it will take at least a few weeks to months for researchers to know more about the new mutations and their cumulative impact.
In other words, there are no clear pieces of evidence yet about the virulency of the new variant.
However, many experts have cautioned about reaching any conclusions since there is no good data yet. They noted that, so far, Omicron has mainly affected healthy and young people who are less susceptible to most symptoms.
A former epidemiologist at Harvard Medical School, Michael Mina (7), highlighted that the number of reported cases in Pretoria was relatively smaller than the high viral load detected in wastewater. And even though that could mean that most infections were mild and went undetected, it was more like that wastewater was an indicator that the case numbers would catch up soon.
“There is nothing in this variant’s genetic sequence suggesting that it is mild,” said Mina.
And even if Omicron caused milder symptoms on average, the cumulative tolls of deaths and hospitalizations would be greater if it is much more infectious and is better at escaping our immunity.
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Is the World Well-Placed to Face the Threat?
Most scientists have supported the immediate response of many countries banning travel from nations where Omicron is spreading at a rapid pace.
“The objective of the border closure and imposing travel restrictions is to limit the global spread of the variant,” said the director of UCL Genetics Institute London, Francois Balloux (8).
“If Omicron were more transmissible than Delta, it is not an effective strategy in the long run. However, it can allow us to gain some time to increase our vaccination rates, including the third dose or booster doses, and also deploy promising drugs in the current pipeline,” added Balloux.
Suppose Omicron spreads globally and leads to a marked increase in hospitalizations and deaths. Governments are more likely to reimpose COVID-related restrictions or social distancing measures – which could mean a return of lockdowns in the worst-case scenario.
Thankfully, most scientists are more confident despite several uncertainties than when the coronavirus first arrived.
According to Balloux, the new variant is not likely to completely escape immunization provided by prior infection and vaccination. Meaning, Omicron waves should be far less painful than the Alpha and Delta ones (9).
The Implications Worldwide
The prolonged battle against the coronavirus pandemic has considerably hit the world economy. Even though vaccination and the receding cases and reduction in virus transmission provided a brief respite, many countries continue to grapple against recurring surges of the cases (10).
The new Omicron variant is blowing the optimistic hopes that the world economy will get better in 2022.
If travel bans and further COVID-related restrictions are imposed again, it will shake the confidence of consumers and corporations alike. It is also likely to limit activities in many countries as the holiday season gets moving.
Countries including Japan and India are likely to ban the entry of all critical countries to limit the spread of the new variant, leading to chaos in the market, particularly in the travel industry.
Even the expectations for increasing interest-rate over the next year have decreased for the central banks of the US, Australia, and the UK.
It seems that the economies worldwide are in wait and watch mode since what comes next will be dictated by discoveries about the Omicron virus from scientists.
In the worst-case scenario, if the mutation needs a return to growth-crippling lockdowns if it is resistant to vaccines and more transmissible than the Delta variant, it would imperil already strained supply chains and damage recovering demand. It has also reignited fears of slower growth and rapid inflation (Suggested Reading: Hyperinflation Has Become the Topic of The Week; Here’s What You Need to Know).
Economists at Goldman Sachs Group have outlined four possibilities, including a downside scenario where a large inflection wave in the first quarter of 2021 witnesses the slowdown of the global growth to a 2% quarter-on-year, a 2.5% annual rate below their current forecast. It also suggests that the cumulative growth in the next year would be about 4.2% or 0.4% below their present forecast.
A benign consequence is that the mutation doesn’t prove to be as threatening as initially feared. However, its emergence would remind us that the COVID-19 pandemic is still a threat to worldwide economies, potentially for years to come.
“We are not in stagflation yet. However, one more year without cross-border movement and related disruption in the supply chain may push us there,” stated Alicia Herrero, chief Asia Pacific economist at Natixis SA (11).
Some economists also believe that the fallout may be less severe than the 2020 recessions.
Except for China, governments worldwide have shown hesitation to rush back into lockdowns. The supply of vaccines also somewhat explains why high-frequency data indicates curbs imposed in Europe are more flexible and less damaging to economic growth.
“Households and businesses have adapted to lockdowns and restrictions. Hence the blows may not be as severe this time,” said the head of global markets research at Nomura Holdings, Robert Subbaraman (12).
“It would mean localized lockdowns at the emergence of outbreaks, tighter restrictions on regional travel, and increased likelihood of port shutdowns,” he added. “Even though China has proven to be adept at managing outbreaks, in the long-term economic costs will be increased if highly-transmissible strains are endemic worldwide.”
According to Mickey Levy, chief economist of the US and Asia at Berenberg Capital Markets (13), “if the variants spread, it can slow down the healthy momentum in the global economies including the US.”
Now, it is worth highlighting that before the emergence of Omicron, some economists believed there would be a transition of demand away from durable goods to services like travel, tourism, and leisure. However, it seems like the switch would now be delayed and can dent the prospects for a worldwide recovery, which is largely uneven.
In October, the International Monetary Fund had warned that the recovery has lost its momentum and is increasingly divided. It stated that the fund calculated gross domestic product for developed economies will regain its pre-pandemic level in the next year and exceed 0.9% by 2024. However, it reckoned that the developing market would still undershoot their pre-pandemic forecast by 5.5% by 2024.
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The Impact of Omicron on India
Despite that, it seems like the Indian government’s effort to boost consumer demand via government spending and lower interest rates is paying off. Instead of spiraling downwards, the Indian economy is on a growth trajectory as a new coronavirus variant emerges as the top threat to worldwide economic recovery (14).
India retains its track to post faster growth among major economies as most of its sectors, including experts and services, continue to show momentum. According to available data by a Bloomberg survey of economists (15), the gross domestic product in India will swell 9.3% in the current financial year, a touch faster than the 9.2% forecast last month.
“The recovery is led by the service sector, with individual movement back to pre-pandemic levels, ultra-accommodative financial conditions, and higher government expenditures,” stated Gaura Sen Gupta, an economist with IDFC First Bank, Mumbai, while forecasting 10% growth this year (16).
India extricated monetary and fiscal policy to power through the pandemic-resultant slump and vowed to keep it like that for as long as needed to support growth.
Nirmala Sitharam, the Finance Minister of India, made infrastructure spending a priority ahead of the February budget, where she will offer an annual plan of the government’s revenue and expenditure.
Meanwhile, the RBI, Reserve Bank of India, is expected to keep its record low-interest rates when it announces its monetary policy. The low-interest regime is likely to drive growth even if authorities scale back the support extended during the pandemic.
Combining it with faster vaccination drive and decline in coronavirus cases, there has been a pick up in the activities. Several high-frequency indicators show strength, from India’s dominant services sector to manufacturing and exports to rising tax collections.
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There are still multiple challenges, including rising input costs because of disruptions in the supply chain and squeezing margins of companies due to the commodity prices to the positive outlook.
It has dampened the recovery in other sectors, including automobiles, particularly two-wheelers, which indicates rural demand to some extent. There are also worries about soaring prices of fertilizers combined with the risks of lower harvests.
There are also risks of negative sentiments in the Indian currency and stock markets. However, the economy has not yet seen any impact.
“There is a broad-based improvement in economic activities. However, the spread of Omicron is still a risk,” stated Sameer Narang, an economist at ICICI Bank Ltd., Mumbai (17).
The Way Forward
After stimulus efforts from the past year, policymakers have fewer options against the economic aftershocks of a sustained outbreak.
Only a few reserve banks have tightened their monetary policies since the end of the 2020 recession. And the developed markets’ key benchmarks have remained around zero. It means that they don’t have enough room to rescue their economies. In addition, governments are already shouldering massive burdens of debts.
“In the absence of distress about any negative influence of Omicron, governments are likely to speed up their asset purchases. However, they may also postpone such decisions considering the uncertainty of the downside effects,” explained Levy.
At the same time, Luis de Guindos, the governor of the European Central Bank, remains positive. He believes that “the effects of the new variant over the economy will remain limited compared to last year.”
Nonetheless, “one thing remains sure, with the economic uncertainty remaining higher, economists worldwide need a dose of humility in forecasting their 2022 forecasts. And with the emergence of Omicron, the dose has now gotten even bigger,” said Subbaraman (18).