The Omicron variant of COVID-19 adds new uncertainties to the global economic outlook and could push prices higher but much will depend on its speed of transmission, hospitalisation and death rates, and also the effectiveness of vaccines, said rating agencies Moody’s Analytics and Fitch Ratings on Monday.
The World Health Organization (WHO) designated Omicron a variant of concern on 26 November due to the number of mutations that can affect how it spreads and its health effects. On 28 November the 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’.
Hence, it will take at least two more weeks before more will be known as scientists around the world build a better understanding of the new variant and as the severity of infections becomes clearer, said Moody's.
"The Omicron variant poses risks to global growth and inflation, especially as it comes during a period of already stretched supply chains, elevated inflation and labor market shortages," Elena Duggar, Associate Managing Director at Moody's was quoted as saying by Reuters. The variant is also likely to hit demand during the upcoming holiday travel and spending season
In its commentary titled ‘Much to Learn About Omicron — Fast’, Moody’s Analytics said that for the Asia-Pacific region there are specific factors to follow in coming weeks, as at least two cases of Omicron have already been detected in Hong Kong and Australia.
Israel has already closed its borders to foreigners for 14 days beginning November 29 and will require citizens re-entering to quarantine. The list of countries banning arrivals from at least eight southern African countries is lengthening daily and includes Japan, India, Australia, the US and the UK. The governor of New York has declared a pre-emptory state of emergency. Further, social distancing rules could be made more stringent within many countries, particularly if policymakers no longer think that rules can differ depending on vaccination status.
"The new Omicron variant illustrates the existing risk to the global economy from regions or individual countries that have low vaccination rates. This includes all of sub-Saharan Africa, where rates remain below 50%, and 60 countries globally with rates below 20%... We are broadly assuming that there will be new waves of infections, but that each wave will be less disruptive to the healthcare system and economy than the previous one. We assume that the Omicron variant is consistent with this assumption. If the variant turns out to be more contagious, virulent, and disruptive to the economy, we will need to revise our economic outlook," said Moody's.
Fitch Ratings said separately that it was 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. "We currently believe that another large, synchronized global downturn, such as that seen in the first half of 2020, is highly unlikely but the rise in inflation will complicate macroeconomic responses if the new variant takes hold," Fitch said.
Tourism will be impacted most:
However, it cautioned that 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.
"The return to pre-pandemic levels of activity in the most exposed sectors, such as tourism and international travel, will be disrupted, and 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," said Brian Coulton, Chief Economist at Fitch Rating.
Inflation:
Recent increases in inflation will complicate any policy response to Omicron, which could have an inflationary effect if new lockdowns or voluntary social distancing constrain labour supply or exacerbate global supply-chain shortages. "Hence, we believe central banks could be wary of delaying the normalization of monetary policy settings in response," added Coulton.
Vaccinations critical:
In this respect, vaccination rates could be critical as evidence from Europe and the US shows vaccinations weaken the link between coronavirus infection and hospitalization rates. Higher vaccination rates could reduce the risk that public health systems are over-burdened.
Key challenges:
According to Moody's whether policymakers can accelerate vaccination programmes will remain the key concern.
Countries including Myanmar, Laos, Indonesia, India, Hong Kong, Thailand, the Philippines and Vietnam have still vaccinated less than 65% of their populations (12 years of age and older). A current second-round spike of the Delta variant in Vietnam illustrates the need to accelerate the pace of vaccination. Moreover, the new Omicron variant illustrates the existing risk to the global economy from regions or individual countries that have low vaccination rates. This includes all of sub-Saharan Africa, where rates remain below 50%, and 60 countries globally with rates below 20%.
Second, will travel lanes continue to be opened between select countries?
Already, travel and tourism is expected to be one of the slowest components of the APAC economic recovery. Much of Southeast Asia, particularly the Philippines and Thailand, depend highly on the industry for growth.
Third, will policymakers in the APAC region accelerate the capacity of public health systems to accommodate all who may need treatment in a future COVID wave?
Such investment would be critical in minimizing any new social distancing measures if a new wave arrives.
