WHILE the omicron COVID-19 variant is highly unlikely to trigger another large, synchronised global downturn such as that seen in 1H 2020, a rise in inflation may complicate macroeconomic responses if the new variant takes hold.
Such is the stance of Fitch Ratings which reckoned that it is too soon to incorporate the effects of the Omicron coronavirus variant into its economic growth forecasts until more is known about its transmissibility and severity.
The World Health Organization (WHO) has designated Omicron a variant of concern on Nov 26 due to the number of mutations that can affect how it spreads and its health effects.
On Nov 28, WHO said it was not yet clear whether Omicron is more transmissible than other variants, including Delta. Although there is currently no information to suggest Omicron’s symptoms are worse, understanding its severity “will take days to several weeks”.
“The possibility of a new variant that requires significant non-pharmaceutical interventions (NPIs) such as highly stringent nationwide lockdowns to contain transmission is a continuing risk to the global economy,” Fitch Ratings pointed out.
“But the experience of most large countries suggests each successive wave of coronavirus infections has diminishing growth effects as economies adapt, for example, through changes in working and consumption patterns.”
Nevertheless, the rating agency opined that vaccination programmes and improved scientific understanding of the virus has reduced reliance on NPIs compared with the beginning of the pandemic.
“Meanwhile, the political bar to re-introducing full lockdowns has risen,” noted Fitch Ratings.
While a repeat of 1H 2020’s unprecedented global gross domestic product (GDP) contraction is unlikely, the rating agency expects the return to pre-pandemic levels of activity in the most exposed sectors such as tourism and international travel to be disrupted while “the shift back to services from goods consumption may also slow”.
“Broader risks to growth have risen where restrictions on economic activity are likely to be more extensive,” noted Fitch Ratings.
In this respect, vaccination rates could be critical as evidence from Europe and the US shows vaccinations weaken the link between coronavirus infection and hospitalisation rates.
“Higher vaccination rates could therefore reduce the risk that public health systems are over-burdened which would necessitate harsher NPIs,” suggested the rating agency. “WHO said it is working with technical partners to understand the potential impact of Omicron on vaccine effectiveness.” – Nov 30, 2021
