• Global economy continues to face risks from Covid-19 variants; the pandemic’s economic impact has diminished, though
  
• The United States (US) Fed accelerates tapering of asset purchases
  
• International oil prices decline on-month on concerns over omicron, disrupting global demand
  

Though the world is in a state of suspended animation with the omicron taking the center stage, it seems to be less severe than delta variant. But what is certain is the uncertainty, and more studies are ongoing to establish its severity. Despite this, the economic impact of Covid-19 has weakened, as governments now have a higher degree of tolerance for infections, and processes and protocols are in place. Even with sporadic surges in Covid-19 cases, economies can be seen rebounding from the pandemic. Performance, though, has been uneven across advanced and emerging market economies, determined also in part by the fiscal support and pace of vaccination.

The focus has now shifted towards the surge in inflation across advanced economies in the West, and likely actions by major central banks. Inflation has already persisted for longer than expected, in sharp contrast to the ‘transitory’ nature attributed to it till mid-2021. The response of central banks to inflation has varied. The US Fed has taken a more decisive stance on speeding up tapering of asset purchases, while the Bank of England (BoE), after being warned against inflation inaction by the International Monetary Fund (IMF), raised interest rates in December. A few emerging-market central banks have already raised interest rates as part of their policy normalization efforts. However, the actions of major central banks will set the tone for monetary policy and global liquidity conditions in the new year. As will the progress of the pandemic.