Not only "omicron": what threatens the recovery of the global economy

Several factors threaten the global economic recovery. The Economist looked into which countries were more vulnerable to these threats

By the second anniversary of the COVID-19 pandemic, the news could have been better. The emergence of a new, presumably highly contagious, strain of the virus called "omicron" provoked sales on the stock exchanges and a decrease in the value of shares. Investors fear that the "newcomer" could slow down economic recovery around the world. Still, 2022 is likely to be a challenging year for the economy, even if the omicron is brought under control. Countries are being affected by two other powerful economic factors: monetary tightening in the United States and slowing economic growth in China.

Both the US and China dominate the global economy, with both countries accounting for 40% of global GDP at market exchange rates. However, the two giants, as a rule, affect the economies of other states in different ways. For many developing countries, strong US growth is both good and bad. The inflationary effect of US household spending is often offset by the effect of the ongoing monetary policy, given the decisive role of the dollar and Treasury bonds in the global financial system. The tightening of US monetary policy is often associated with a decrease in global risk appetite. Capital flows to emerging markets tend to decline; the strengthening of the dollar affects the reduction in trade due to its role in international invoicing.

China affects the world in a slightly different way. The country is the world leader (by a wide margin) in consumption of aluminium, coal, cotton and soybeans, among other raw materials, and a top importer of goods ranging from manufacturing equipment to wine. Disruptions in the Chinese economy are painful for exporters around the world.