KUALA LUMPUR: Should the Omicron variant lead to a resurgence of Covid-19 infections, the hardest-hit economies will be those with lower vaccination rates, higher dependence on tourism and lower capacity to offer additional fiscal and monetary policy support to offset the variant’s impact on growth.
Moody’s Investors Services (Moody’s) said if the variant affects global market risk appetite, it would cause further financial stress for debt issuers with large financing needs.
For example, emerging markets that rely on international markets for borrowing may face heightened refinancing risks.
Backed by highly effective vaccines, high vaccination rates and extensive policy support to the private sector, advanced economies are in a better position to face the challenges that the new variant poses compared to emerging market countries.
“But vaccine hesitancy remains a hurdle to recovery in many places, including in several advanced economies,” it said in its report.
Moody’s noted that the economic impact on emerging market countries will differ, depending on a mix of government restrictions, the public’s level of comfort in terms of social interactions, and governments and central banks’ capacity to provide additional policy support to the private sector, if necessary.
On the flip side, past experience from the emergence of other variants -- most notably the Delta variant -- and the public health policies put in place to counter the successive waves of infections provide some basis for identifying the factors that will determine the economic and credit impact of this latest variant.
“Omicron appears to have been identified early, which increases the ability of policymakers to undertake measures to slow its spread.
“It is not yet known whether this variant is more transmissible or more severe than other virus strains, or to what extent existing vaccines and treatments provide protection against severe disease,” it said.
Nevertheless, continued progress in global vaccination efforts and public compliance with use of tools such as masks and social distancing will be important factors in determining the economic impact of the new variant.
Countries with an assured supply of effective vaccines and delivery systems, and high levels of vaccine acceptance by the public will remain better positioned, said Moody’s.
However, if officials ultimately determine that Omicron poses a high public health risk and if the variant proves difficult to contain with border curbs – similar to the spread of the Delta variant, policymakers in several countries will likely impose renewed mobility restrictions.
“The severity of restrictions will vary, depending on factors including the specific public health situation in each country, public support for restrictions, and the willingness of authorities to bear the economic and political costs associated with restrictions,” it added. — Bernama
