Omicron Increases Growth Risks and Policymaking Challenges

Proshare

Thursday, December 02, 2021 / 08:57 AM / by Fitch Ratings / Header Image Credit: DW


It is too soon to incorporate the effects of the Omicron coronavirus variant into our economic growth forecasts until more is known about its transmissibility and severity, Fitch Ratings says. We currently believe that another large, synchronized global downturn, such as that seen in 1H20, is highly unlikely but the rise in inflation will complicate macroeconomic responses if the new variant takes hold.

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'.

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. 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.

Moreover, vaccination programmes and improved scientific understanding of the virus reduced reliance on NPIs compared with the beginning of the pandemic. Meanwhile the political bar to reintroducing full lockdowns has risen.

These factors make a repeat of 1H20'' unprecedented global GDP contraction unlikely. Nevertheless, 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.

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; therefore, reduce the risk that public health systems are over-burdened, which would necessitate harsher NPIs. The WHO said it is 'working with technical partners to understand the potential impact' of Omicron on vaccine effectiveness.

Proshare Nigeria Pvt. Ltd.

The scale of the policy support provided in response to the pandemic has limited supply-side scarring from the pandemic in developed markets, relative to our initial expectations. However, 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 recoveries or exacerbate global supply-chain shortages and bottlenecks. Hence, we believe central banks could be wary of delaying the normalization of monetary policy settings in response.

Proshare Nigeria Pvt. Ltd.

Related News

  1. Inflation is a Greater Policy Test for Emerging-Market Sovereigns
  2. Extent of Rising Inflation, Rates to Dictate US REIT Credit Effect
  3. Federal Reserve Issues FOMC Statement and Implementation Note From Its November 2021 Meeting
  4. Is a More Hawkish Fed Good for Income Investors?
  5. Fiscal 2022 US State Tax Cuts May Complicate Budgets Longer-Term
  6. Federal Reserve Issues FOMC Statement and Implementation Note From Its September 2021 Meeting
  7. Policy Normalisation and Potential Impacts on Emerging Markets
  8. Desperate Policy Actions to Tackle Inflation in the US Will Send Shockwaves
  9. Federal Reserve Issues FOMC Statement and Implementation Note From Its June 2021 Meeting
  10. US Inflation Surges to 13-Year High of 5%
  11. Federal Reserve Board Issues May 2021 Financial Stability Report
  12. Let's Talk African Trade and The US Elections
  13. Federal Reserve Begins 2020 Census of Finance Companies and Other Lenders


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP