Vaccines Likely to Blunt Omicron’s Economic Impact, Goldman Sachs Says

As long as vaccine efficacy holds up in the U.S., the economic hit from the emergence of Covid-19’s Omicron variant likely will be moderate, Goldman Sachs economists said in a report on Saturday.

“The disease severity or degree of protection offered by existing vaccines is likely the key determinant of the effect that Omicron will have on the U.S. economy,” the report said.

Omicron likely will cut one and a half percentage points from GDP growth in 2022’s first quarter and half a percentage point in the second quarter, the report said. Goldman Sachs’ forecast for the first quarter now estimates GDP will expand 3% from a year earlier and projects second-quarter economic growth will be 3.5%.

“Early data and expert opinion do not point to sharp deterioration in vaccine efficacy against hospitalizations and disease severity,” said the economists, led by Goldman Sachs Chief Economist Jan Hatzius. “While many questions remain unanswered, we now think a moderate downside scenario where the virus spreads more quickly but immunity against severe disease is only slightly weakened is most likely.”

More than 462 million vaccine shots have been administered in the U.S., according to Bloomberg’s “Vaccine Tracker.” Almost 60% of Americans are fully vaccinated, meaning they’ve received two doses, and 13% have received a booster. That puts the U.S. at No. 76 in a ranking of nations by the population share with two doses.

Globally, medical workers have given 8.2 billion shots of Covid-19 vaccines, Bloomberg said.

The question of whether or not people are protected by existing vaccines impacts the economy because about three-quarters of U.S. GDP comes from consumer spending, and people tend to skip visiting stores if they believe they could catch Covid-19 and potentially spread it to family members or others.

In 2020’s second quarter, when the pandemic arrived in the U.S., GDP plunged 31%, according to data from the Bureau of Economic Analysis.

While several European countries, including Germany, have locked down their economies – in some cases, only for unvaccinated people, to keep hospital ICUs from overflowing – the U.S. is not considering such a move, President Joe Biden said last week.

Omicron, which many scientists have said may be even more infectious than the hyper-contagious Delta variant, probably won’t worsen the supply-chain bottlenecks that sent U.S. inflation to a 31-year high in October, the Goldman Sachs report said.

“The good news is that vaccination rates in Southeast Asia have increased dramatically since mid-March, suggesting that virus spread today will likely not result in as much policy tightening as we saw following the spread of the Delta variant earlier this year,” the report said.

The fully-vaccinated population share in Malaysia – the largest exporter of semiconductors and electronic components to the U.S. – is 78% today, compared with less than 10% in June, the report said. In Taiwan – the second-largest exporter of computer chips and other electronic parts – 56% of the population is fully vaccinated, up from zero in June, it said.

“As a result, we see less scope for severe supply chain disruptions and expect only a moderate hit to the supply of goods, but note that downside risks from this channel are potentially large,” the report said.

Omicron could worsen a worker shortage that has forced many businesses, such as restaurants and coffee shops, to limit their hours, the Goldman Sachs economists said.

About 2.5 million U.S. workers report that concerns about getting or spreading Covid-19 are their main reason for not working, the report said.

“If Omicron delays the timeline for some people feeling comfortable returning to work, worker shortages may linger longer than expected,” the report said.