Australian business in holding pattern on Omicron uncertainty

Australian businesses are in a nervous holding pattern as they await hard evidence about the threat posed by the Omicron variant while calling on governments to avoid new restrictions that would delay the country’s reopening. Local shares pared back early losses on Monday after Friday’s sharp sell-off, suggesting that investors believe that the likely economic blow from Omicron may have been overstated. However, even though health authorities are still working to understand the variant, business leaders have urged Federal and State governments to have faith in Australia’s high vaccination rates and push ahead with reopening plans. Scott Jones, chief executive of Perth-based international education company Navitas, which has been savaged by border closures, said while it was still too early to assess the impact of Omicron, he hoped the Federal Government would “take a pragmatic approach based on scientific and health advice”. “We know there are going to be new variants as the pandemic evolves,” Mr Jones said. “I am confident that the high levels of vaccination will provide Australia with a level of resilience so that we do not need to revert to border closures every time a new variant emerges.” The Business Council of Australia delivered a similar message, with chief executive Jennifer Westacott arguing that “unless the risk level rises dramatically, state governments should forge ahead with the reopening”. She said more information about Omicron was needed before governments made “knee-jerk decisions that will throw lives into chaos and make it impossible for businesses to plan”. “We still do not know the impact this variant will have on the efficacy of vaccines, how quickly it spreads or the kind of illness it produces,” she said. Having plunged 1.73 per cent on Friday, the S&P-ASX200 index shed another 1 per cent in early trading on Monday before clawing back ground to close 0.54 per cent lower. Shopping centre stocks including Westfield and Scentre were amongst the biggest casualties. The market’s partial recovery was driven by futures trading suggesting an overnight rebound in US stocks and was followed by a bounce in European shares later Monday. However, analysts emphasised that investors should brace for ongoing trading volatility while Omicron played out. Australian governments were expected “to assume the worst, move quickly, and take an overly cautious approach”, RBC Capital Markets said in a research note. “Much depends on its severity, how effective current vaccines are, and how quickly alternative vaccines can be produced and distributed,” the firm said. However, “ a delay of further easing in restrictions and/or additional measures will be inevitable in Omicron moves quickly in Australia”. Goldman Sachs analysts spelled out for scenarios for Omicron, including one where a major infection wave in the March quarter of next year would slash global economic growth to a 2 per cent quarter-on-quarter annual rate, 2.5 percentage points below their current forecast. Annual growth in 2022 would then be 4.2 per cent, or 0.4 percentage points below forecast.