(The opinions expressed here are those of the author, a columnist for Reuters.)

ORLANDO, Fla. (Reuters) – Central banks are jacking up interest rates to tackle the highest inflation in decades, economic growth is slowing, recession looms, and financial markets are in a deep funk.

That’s the bleak backdrop against which consumers, workers, and businesses are coming round to the realization that, despite successful global vaccination programs and ‘V-shaped’ recoveries across economies and markets, COVID-19 has not gone away.

Of course, the 40-year high inflation that many consumers are now experiencing largely stems from supply chain and bottleneck issues that are a direct consequence of the global lockdowns imposed to combat COVID-19’s initial wave in 2020.

Inflation is approaching 10% in many countries and interest rates are rising accordingly. Canada’s central bank raised its policy rate by a full percentage point on Wednesday, and traders are betting the Federal Reserve will do the same later this month.

There is also the loss of output from the pandemic-fueled recession of 2020. Assuming pre-pandemic trend growth of 2%, JP Morgan economists estimate the cumulative loss of U.S. output and income over the past two years at $1.5 trillion – almost 8% of annual GDP – which they say will likely be permanent.

The equivalent UK and euro zone losses are even greater at 9% and 12%, respectively, they estimate.

Leaving aside China and its idiosyncratic zero-COVID policy, the highly transmissible BA.4 and BA.5 subvariants now sweeping the world are a reminder that the virus itself is very much here to stay.

Authorities from Japan to New Zealand on Friday warned residents to take precautions to slow the outbreak and help prevent healthcare systems from being overwhelmed, while the White House this week issued a multi-pronged strategy to tackle the new variants.

New waves may not be economic game-changers, but they will be persistent drags on activity. Economic scarring will take longer to heal and growth will be slower to recover.

MOBILITY DOWN

The severity of the disease caused by the virus is greatly diminished thanks to vaccines, and travel restrictions, quarantine protocols, and mask mandates have mostly been dropped. Commerce has re-opened, and restaurants, sporting events, hotels, and airports in many areas are bustling.

Although there is zero appetite for the struggle and sacrifice that lockdowns brought, people’s outlooks and behavior have changed. Stores are open but shoppers are not returning en masse; offices are open but large swathes of employees work from home; trains are running but passenger counts are down.

“The hope is we get back to quasi-normal,” said Karim El Nokali, an investment strategist at asset management firm Schroders, noting that supply chain issues, labor market distortions, higher inflation, and behavioral changes are now permanent economic features, not bugs.

“It’s hard to quantify, but it will continue to have an impact on the economy. Undoubtedly.”

GRAPHIC: Google mobility data – Schroders

Schroders compiles a monthly ‘Google mobility’ index based on Google’s location tracking data and which charts changes in activity around specific sectors.

Its July index shows that U.S. workplace mobility is around 25% below the pre-pandemic baseline, which it defines as Jan. 3 to Feb. 6, 2020.

U.S. retail and recreation activity is about 5% down from the pre-pandemic baseline, the index shows, while Google data shows mobility around public transport hubs down more than 20%.

JPMorgan has compiled an index tracking the bank’s business flights compared to the same day in 2019. It is volatile, and shows a steady improvement over the past year. But the volume of traffic only recently and briefly returned to pre-pandemic levels, and for the most part it remains much lower.

GRAPHIC: JP Morgan business flights

WORLD HAS CHANGED

U.S. authorities say the new variants now make up 80% of all new COVID cases. Most of them are the highly transmissible BA.5 subvariant, meaning infections could soar in the coming weeks.

Daily new cases are topping 200,000 and the seven-day rolling average is rising enough to suggest a fourth wave of the virus is underway.

We have seen how the virus affects the labor market. Millions of people have already left the U.S. workforce through early retirement, staying at home for childcare reasons, or opting for more part-time, flexible jobs that go under the official radar.

The labor force participation rate is still more than a percentage point below its pre-pandemic level, meaning the jobs market is extra tight. Additional waves of the virus could keep more people at home, further distorting the relationship between employment, wages, and inflation.

Matt Orton at Carillon Tower Advisers, an asset management firm, notes that having come through the last two years, people are more confident now about making their own risk-reward decisions on all aspects of their lives with regard to the virus.

But things won’t be the same again.

“Psychologically we are past it, but there has been a shift in behavior. Things feel more normal, but not fully normal. The world has structurally changed,” he said.

(The opinions expressed here are those of the author, a columnist for Reuters.)

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