Economy Battered As Omicron Gradually Rises

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Just as the world was thinking of emerging from the covid crisis and finally looking towards the global economy, bad news makes its way. Waves of new covid variants are a spelling disaster for nations across the planet. After a South African doctor conclusively proved the infection by a still more infectious variant of the old covid-19 virus, once again the world is gripped with fear. Already have witnessed the virus mayhem since 2019, no country today wants a new variant to add to its miseries. Several countries were seen closing their airspace for African nations. Japan, for instance, has reportedly stopped all international flights coming. Some European countries are also following suit, amidst already spiking covid infection rates. China, the country which had let loose this horrible plight on the world, has been pursuing its crude policy of zero-tolerance to covid infection. While Brazil has been another weak spot, with a large incidence of infection, omicron or no omicron. On the other hand, many doctors conclude that although the virus mutant is far more infectious than the earlier Delta one, it has so far proved to be less fatal.

However, this still called for medical attention and treatment, particularly to isolate and spot its spread. If controlling the spread of the omicron variety of covid needs still more vicious isolation and lockdown, then this is surely going to affect the global economic recovery now underway. The IMF had forecast comfortable economic recovery before the news of the omicron spread. Now, after its emergence and rapid spread, these would have to be reviewed. Already, markets have fallen sharply and these are still waiting for further details. As more and more news appears about the omicron variety, the financial markets would surely react. By itself, this will leave dents on countries, depending on their other strengths or weaknesses. Recall what had happened on the news of tapering of bond purchases by the US Federal Reserve which had buoyed up the sentiments on the financial markets and kept the interest rates low. News of the Fed cutting down bond purchases drove their yield up and financial flows to the emerging market economies plummeted. The exchange rates of most of the countries were nosedived and they had faced a new crisis. Based on the impact of the US tapering, the larger emerging market economies had immediately turned into a new grade —the Frail Five— which experienced a sharp drop in their exchange rates, domestic financial uncertainties, and the fresh dip in economic activity.

With both China and the United States being the engines of the global economy, their domestic economic policies will definitely influence what happens to others. There are two principal threats now. The first is that China is slowing down and a slower China poses threat to a host of countries with numerous related risks. The second is the monetary policy stance of the US Federal Reserve and the rippling financial woes these could inflict across the world. How is India laced in this situation? Fairly comfortably. With foreign exchange reserves overflowing and relative price stability, India is not exposed to the risks from either of these potential sources of instability in the global economy. It emerges that since exports count for less, India should not be very exposed to a drop in global demand.

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