Economic Watch: Omicron variant clouds European economic recovery

Frankfurt (Germany), January 8: New cases of COVID-19 have been soaring across Europe in recent days, forcing some European countries to reimpose restrictions.
Largely attributed to the Omicron variant, which has been designated by the World Health Organization as a variant of concern, the resurgence of the pandemic has raised worries about the economic rebound in Europe.
SERIOUS CONCERNS
Britain has witnessed a dramatic increase of Omicron-induced infections with daily cases soaring to over 19.4 million on Wednesday, a sign that Omicron is spreading fast in the country despite the fact that 82.6 percent of its population aged 12 and over have received two doses of a COVID-19 vaccine.
The European Center for Disease Prevention and Control has voiced serious concerns about the Omicron variant.
In its latest risk assessment issued in mid-December, the agency warned that there were indications that community transmission was ongoing in Europe and a further rapid increase in the number of Omicron cases was expected in the next two months.
Some forms of protections and restrictions have been imposed in most European countries, according to the agency.
In the Netherlands, a lockdown has been put in place. Restaurants and bars, zoos and parks, as well as non-essential shops are closed and people have been ordered to stay at home as much as possible until Jan. 14.
In France, people are obligated to work from home for three days a week. Germany tightened restrictions at the end of 2021, closing clubs and bars and limiting contacts.
DOMINO EFFECTS
The latest round of restrictions will almost inevitably weigh on economic activities. The effects of restrictions will pose even greater risks to the economic recovery in Europe.
The European Commission (EC) noted that the resurgence of the pandemic, coupled with a shortage in the labor force, has compounded the disruptions of the supply chain of the manufacturing industry in Europe.
Should the supply bottlenecks prolong or worsen, European countries that rely heavily on the manufacturing industry will continue to suffer.
For the German automotive industry, the situation shows little sign of easing. The supply bottlenecks for intermediate products persist and manufacturers have reported faltering international business, the German research institute Ifo said in a press release on Wednesday.
The latest round of Omicron infections will have an impact on Europe's plan to bring its debt and budget deficit under control.
The European Union (EU) temporarily suspended the rules for a debt ceiling of 60 percent of gross domestic product (GDP) and budget deficits below 3 percent in order to fight the coronavirus pandemic.
The euro-area government deficit hovered at 7.2 percent of GDP and government debt stood at 97.3 percent of GDP in 2020, the EU statistics office disclosed in October last year. It is estimated that public debt peaked at 100 percent of GDP for the euro area in 2021.
A prolonged pandemic means the EU is likely to extend the suspension of fiscal rules in 2022 and let its member states spend more than they used to be allowed to keep businesses afloat.
SILVER LINING
The EC defied the resurgence of the pandemic and gave an upbeat forecast about the economic recovery in the EU in November.
The GDP in the euro area will increase by 5 percent in 2021 and 4.3 percent in 2022, the EC forecast, adding that the public debt and deficit will come down.
The EC's optimism about the economic recovery in the EU is supported by the improvement of some indicators.
There were signs that shipping costs declined in December, indicating that the disruptions in the logistics sector were getting better.
The latest result of the worldwide Purchasing Manager Index survey conducted by the market research company IHS Markit showed that the shortages of semiconductors have eased to the lowest since January last year, said Chris Williamson, chief business economist at IHS Markit.
Real-time indicators suggested that manufacturing activity resumed in the euro area in the fourth quarter and there will be a stronger recovery in February or March 2022, the S&P Global Ratings, one of the major rating companies in the world, noted in a report in November.
Source: Xinhua