I’m a WWII documentary junkie. I recently watched footage of the German Wehrmacht sweeping across France in 1940, and it occurred to me that Omicron is akin to a blitzkrieg. Will the microscopic pathogen succeed in subjugating Europe, where other so-called conquerors have failed?
As the highly contagious variant of the Omicron coronavirus presents itself as a Panzer divide across Europe, countries on the continent are taking health measures that are economically debilitating.
Scientists are giving hope by indicating that Omicron may soon be extinct globally. But until that happens, European countries are reimagining lockdowns, quarantines and vaccination warrants. The severity of these measures would be politically untenable in the United States
Just a few months ago, analysts were touting Europe’s economic rebound and its appeal as an investment destination. Not anymore.
The United States and Europe are reporting record numbers of Omicron infections, a trend that is shaking up growth projections. Asia has slowed the spread thanks to previous proactive measures.
Do not mistake yourself. The global equity rally remains intact and a widespread recession this year in the US and Europe is unlikely. But the risks are increasing.
That’s why our investment team has put together a report that identifies key “megatrends” that are expected to unfold regardless of threats like Omicron. Some of our predictions will amaze you. More on that, below. But first, let’s look beyond the US shores and see how European economies are doing under Omicron.
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First spotted in November, Omicron has also plagued the United States, but Europe is taking more drastic measures to tackle the virus, which in turn is hampering the region’s economic outlook. In the United States, many political leaders are more willing to deal with the adverse health consequences of easing COVID restrictions.
The World Health Organization recently urged European governments to prepare for a “significant increase” in COVID cases in the region, calling it “another storm” that could strain public health systems (see graph).
Germany, the region’s largest economy, instituted a new round of social and trade restrictions that went into effect on December 28. The UK, France, Italy, Austria, the Netherlands, Spain and other European countries have followed suit. The UK has been particularly affected by the Omicron cases.
European countries limit the size of gatherings, close restaurants and bars, organize sporting events without the presence of fans and impose vaccination passes for entry into public spaces.
These health measures are politically possible in Europe because of the region’s ingrained sense of collective social responsibility. The result for investors: Analysts lower their forecasts of economic growth for the region.
According to research firm FactSet, the median estimate of the euro area’s real gross domestic product (GDP) growth in the fourth quarter of 2021 is currently only 0.6% quarter-over-quarter, against growth projections of 1.2% in July.
Analysts also lowered their forecast for the first quarter of 2022, forecasting quarter-over-quarter GDP growth of 0.4% compared to the projection of 0.8% in October (see following chart).
The energy crisis is exacerbating the current situation in Europe. European natural gas prices soared at the end of December, breaking records amid sub-freezing temperatures and a shortage of supply. Largely because of rising energy prices, European inflation rates have jumped.
In November, the Harmonized Consumer Price Index (HICP) in the euro area rose 4.9% year-on-year; energy prices rose 27.5%. Core HICP, which excludes the volatile components of energy and food, rose 2.6%.
These inflation growth rates are well above the European Central Bank (ECB) inflation target of 2.0%. As with the US Federal Reserve, the ECB and the Bank of England have indicated that they will raise interest rates in 2022 to fight inflation. Increasingly hawkish monetary policy, in the United States and Europe, is a headwind for investors.
The sudden economic deterioration in Europe due to Omicron is also bad news for the United States, as it means a weaker market for American products.
The unexpected turn of events in Europe is a reminder that you must be on your guard in 2022, as the pandemic and rising inflation derail the economic and financial forecasts that seemed so strong just a few weeks ago.
To guide you through these perilous times, our analysts have compiled a special report of seven shocking investment forecasts for 2022, and how to profit from them. To download your free copy, Click here.