December Global Macro Monthly - Omicron – the ghost of Christmas past?

  • 17 December 2021 (10 min read)

Key points

  • The Omicron variant presents a new and as yet undefined risk to the growth outlook for 2022. Evidence on the severity of infections will define the likely growth impact.
  • Despite growth softening with supply constraints, the outlook for next year should be for further solid recovery. Inflation continues to rise but should be close to a peak in several jurisdictions.
  • Labour market differences will shape medium-term inflation risks. Tight labour markets in the UK and Canada make the Bank of England and Bank of Canada look likely early tighteners. The Federal Reserve is tapering more quickly and can tighten earlier in 2022. The European Central Bank has announced its own taper for 2022.
  • Rates and credit markets are positioned for faster Fed rate tightening, while the dollar could benefit further. ECB-Fed rate divergence poses some risk to European equity risk premia, but we remain constructive in outlook.

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