Global financial markets, economies react as Nigeria, others record index cases of Omicron
Experts say Nigeria’s 2021 GDP growth may get hampered, economic recovery to be dampened if…
Economic and market analysts have offered mixed expectations on the direction of global and domestic economies in the wake of the emergence of the latest variant of the coronavirus, Covid-19, named Omicron.
Concerns had swept financial markets for a while last week, especially following what was considered both knee jerk and regional profiling reactions by some European countries with the swift imposition of a ban on travels and flights from some countries in Africa after the discovery of Omicron was confirmed by South African scientists.
The reaction was enough to produce some worrying moments across economies with the global financial markets going on a rollercoaster ride. Edward Moya, senior market analyst at OANDA, in a note to Business A.M., stated that: “People wanted to believe the world was getting close to the end of COVID, but the latest jitters from [the] Omicron variant signalled the inevitable COVID winter surge might already be here.”
He added: “Omicron is the latest COVID test for the economic outlook, and the world won’t have a clear picture until a couple more weeks. Last week’s turmoil looked a lot worse given the lack of liquidity, options volatility and overall frothy levels for equities.
“Investors will learn over the next couple of weeks if the Omicron variant causes more severe disease than the other variants. So far, the MRNA vaccines have proved effective against other variants such as delta; and optimism has been that even they will eventually need to get tweaked that could be done in a few months’ time,” said Moya.
Some analysts say the concern being expressed is justified, especially because the world cannot forget in a hurry the devastating impact on the global economy, the supply chain disruptions and the lockdowns that kept the world on tenterhooks. They say it is the fear of a repeat of the lockdowns more than being infected by the disease that has sent jitters down many people, including countries.
For more than 12 months into the COVID-19 pandemic, economies around the globe have continued to seek measures to aid the curtailment of the impact of the global health crisis. While countries of the world keep counts of the number of citizens vaccinated against COVID-19 in their millions, Africa still grapples with the unfortunate combination of vaccine hesitancy and vaccine scarcity.
In Nigeria, Ifedayo Adetifa, director-general of the Nigeria Centre for Disease Control (NCDC) in a detailed statement said genomic surveillance identified the presence of the B.1.1.529 SARS-CoV-2 lineage, now infamously identified as the Omicron variant, in three travellers from South Africa. These new developments are reminiscent of the Delta variant, which was first identified in India in December last year.
The World Health Organisation (WHO) has labelled the variant a “variant of concern” as Omicron, according to preliminary findings, appears to have a higher risk of re-infection than other virus classes, as well as being easily transmissible.
The concerns that have followed in the wake of Omicron’s discovery are the things now feeding into macroeconomic worries and creating a gloomy outlook for the global economy in the event that it presents more potent danger that leads to another lockdown.
Several indications across the business and financial markets have pressed the buttons for investors to panic about what possible route the markets are likely to journey through on the path to recovery from the pandemic.
Nigeria’s case is not far-fetched as all indications from the recent happenings across the globe have posed strains on the Nigerian economy.
In this connection, it is without a doubt that Nigeria’s gross external reserves have seen a period of free fall to well below $45 billion in more than 20 months to about $30 billion, and then later rising gradually to above $40 billion as of the start of December 2021. Also, the economic output (GDP) has, in the aftermath of the coronavirus outbreak, expanded in real terms, and did so for the fourth successive quarters by 4.03 percent year on year, according to the National Bureau of Statistics (NBS).
Notably, the third quarter of 2021 saw GDP growth expand 11.1 percent quarter on quarter, evidencing higher economic activity amid minimal pandemic-related restrictions and improved vaccinations in the quarter.
However, given that economic analysts have expressed optimism over Nigeria’s 2021 economic growth, and also, that the threat posed by the Delta variant of Covid-19 did not necessitate the renewal of restrictions in Q3 of 2021, as economic activity remained strong, allowing for a substantial month on month growth, they have noted that the probability of economic restrictions in the final quarter of 2021 is low as it is expected that the spread of the Covid-19 virus will remain contained.
On the other hand, they are of the view that the Omicron variant may bring about a trigger for some restrictive measures during the festive season and they have also expressed the possibility that the growth projections may be hampered by this new emerging variant, as well as giving room for the decelerating headline inflation to take a reversal and make a northward movement while real prices of consumer commodities spiral.
And lending credence to the fears of the Omicron variant’s attendant effect on the economy of Nigeria, as well as what may be the next action point for various national governments as pre-emptive measures to avert the almost inevitable rise of the variant cases in several nations, analysts, while weighing in on the risks of the Omicron variant to the economy, the financial markets and investments, have written that since the emergence of the variant, a lot has happened, and that policymakers will now seek ways to mitigate the risks and put on a pro-growth mode.
Oluwatosin Olaseinde, founder of The Money Africa, in a newsletter on the impact of the virus on the money and financial markets, made available to Business A.M, said: “The Omicron variant is a new variant of the Covid-19. Ever since this variant was first identified in the US, it has affected the financial markets in different ways.
“The stock market has taken a hit as the three major US stock market indices declined by over 3 percent just within three days. The S&P 500 declined by 3.06 percent, the Dow Jones declined by 3.17 percent, and the Nasdaq composite index declined by 3.35 percent. Investors are worried that the new variant could lead to lockdowns and other stiff measures across the world. Some countries have done so with South Africa.
“The stock market, however, picked up a bit, as at the close of market on Thursday. For some investors, the dip in share prices is a buying opportunity,” she concluded.
United Capital research analysts noted that the discovery of the variant and the announcement of recorded index cases in Nigeria, just as was reported in the Southern region of Africa, as well as in the United States, may dent Nigeria’s international trade market, which may be expected to impact economic growth and the accretion of Nigeria’s dollar reserves.
“Looking ahead, we anticipate that this will have some impact on economic activity, potentially dampening the global economic recovery. However, for the time being, we are less concerned with the broader macro picture.
“Vaccine campaigns have been demonstrated to be highly effective, even against the Delta variant, and there is no evidence that the Omicron variant will significantly impact vaccine effectiveness. However, with Nigeria recording its first cases of the variant, we might see countries placing the country on travel ban lists.
“This has every tendency of denting Nigeria’s international trade, which can impact economic growth and dollar reserves accretion. Furthermore, we expect oil prices to experience further pressure on the back of heightening worries about oil demand,” they said.
Also, concerns about travel demand and potential lockdowns drove Brent crude oil to $70.57 per barrel on the last day in November, and 18.8 percent lower than this year’s $86.88 per barrel peak.
David Akwu, an economics lecturer at the University of Nigeria, Nsukka, said a drop in crude oil prices will affect Nigeria’s revenue position, which will ultimately impact budget implementation and the economic recovery process.
“Although the economy had grown in the third quarter of 2021, growth in the first quarter of 2022 will be impacted if crude oil prices continue a sustained decline as the world battles to suppress the Omicron COVID-19 virus. Also, a restricted travel situation will lead to economic contraction as was experienced during the lockdowns in 2020,” he said.
Akwu, however, said that it was very unlikely that there would be total lockdown as was done in 2020 due to the mass vaccinations carried out, thus the impact of Omicron might not be as devastating.