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Shoppers at the Toronto Eaton Centre shopping mall, as the latest Omicron variant emerges as a threat, in Toronto on Dec. 22.STRINGER/Reuters

A couple of days ago, a few of us risked going out for dinner in Rome. When we arrived at the restaurant, two of my friends immediately turned around and went home.

The seating was technically outdoors, but the temporary plastic awning put in place to protect patrons from the cool breeze restricted air flow, making my friends nervous. By then we were well aware that the new Omicron variant was highly contagious and that we had to minimize risks.

The restaurant was no more than a quarter full. It would have been packed only a few weeks ago, before anyone had heard of Omicron. All we had to do to eat inside was show a green pass, which displays our vaccination history (almost every adult I know in Rome has received a third dose, and Italy’s vaccination rate is one of the world’s highest).

The next day, we learned that our flight to London had been cancelled, apparently because the airline had so many cancellations that it made no sense to put the plane in the air. We have not rebooked for fear the Omicron sweep will turn London into a post-Christmas ghost town.

The near-empty restaurant and the cancelled flight are examples of consumers responding more to fear than official restrictions. And that’s why Omicron will hurt demand and probably result in growth forecasts being revised downwards. The spectacular economic rebound of 2021 may be coming to an end, though it’s still too early to determine the degree of pain we may face.

The first indications are that Omicron infections often result in milder forms of COVID-19 than those from previous variants, such as Delta, triggering some optimism that the current wave may not be severe and that growth will not be slaughtered.

But the risks to this scenario are high. The sheer number of infections may yet trigger a hospitalization onslaught. On one day this week, the U.K. registered a record-breaking 106,000 infections, even though more than 70 per cent of the eligible population is fully vaccinated and almost 40 per cent have received third doses, according to the Bloomberg Vaccine Tracker.

On Dec. 18, the British government’s Scientific Advisory Group for Emergencies (SAGE) estimated that the Omicron infection doubling time – a mere two days – means 1,000 to 2,000 hospital admissions per day in England alone by the end of the year. “The acceleration of the booster vaccination programme will not affect transmission and severe and mild diseases in time to mitigate these hospitalizations for the rest of 2021,” SAGE said.

And just because Omicron does not appear to be a mass killing machine does not necessarily decrease its ability to inflict long COVID.

So the risk to growth remains ample, at least until we have more information about the dangers of Omicron and get a sense of where hospital admissions and pandemic restrictions are going. Border closures would be inevitable if ICUs were to fill to breaking point.

The biggest risk at the moment is fear of the unknown, which is keeping families at home. We have seen this scenario before. In 2020, economies collapsed almost everywhere as COVID-19 swept across the planet. No vaccines were available, ICUs were full, and new variants were coming. U.S. economists Austan Goolsbee and Chad Syverson, writing early this year in the Journal of Public Economics, concluded that the main driver of the economic slowdown was fear of infection, not legal restrictions on movement (they used U.S. mobile phone data to measure customer visits to millions of businesses in more than 100 industries).

They wrote that while overall consumer traffic fell by almost two-thirds, restrictions explained only 7 percentage points of the shopping collapse. “Individual choices were far more important and seemed tied to fears of infections,” they said. “Traffic started dropping before the legal orders were in place … The drop in consumer visits is strongly correlated with the number of local COVID deaths.”

Today, initial reports of a slowdown in shopping, restaurant visits and travel across Europe appear to reflect fears that Omicron dangers are still being calculated, so better to err on the side of caution.

Restrictions are coming, but so far they are not nearly as tough as those imposed in the first half of last year. France and Germany have drastically restricted travel from the U.K. Other countries have only slightly tightened up. On Thursday Italy reimposed mandatory mask use outdoors, though there was no indication from Mario Draghi’s government that new lockdowns were under consideration. Starting Boxing Day, Quebec will limit gatherings inside the home to six people in two family bubbles.

Still, the highly contagious Omicron variant is already hurting a delicate recovery in Europe and North America, and the inflation scare and surging energy costs (natural gas prices in Europe have doubled in December) are adding to the economic pressure, as will the probable defeat of U.S. President Joe Biden’s US$1.75-trillion Build Back Better spending package. The pandemic economy is not saved yet – far from it.

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