Omicron variant a concern, not a calamity: Fitch

While a return to sweeping lockdowns seems unlikely, the latest coronavirus variant intensifies the risks facing the global economic recovery, says Fitch Ratings.

In a new report, the rating agency said that it’s too soon to definitively assess the economic impact of the emergence of the Omicron variant “until more is known about its transmissibility and severity.”

That said, Fitch currently believes 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.”

So far, while the World Health Organization has designated Omicron a “variant of concern,” it also said it’s not clear whether it is more transmissible than other variants, including the Delta variant, and or that it generates more severe symptoms.

Still, the risk of variants that lead to strict national lockdowns remains a risk to the global economy, Fitch said.

Each wave of the pandemic has had diminishing economic effects, as shifts in working and consumption patterns have enabled economies to adapt, it said.

Additionally, the reliance on lockdowns has declined as vaccination rates have increased and the virus has become better understood. “Meanwhile the political bar to reintroducing full lockdowns has risen,” Fitch said.

As a result, the prospect of another coordinated global GDP drop is “unlikely” it said.

However, the risks to growth, particularly in the most affected sectors, have risen, it suggested.

“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,” it said.

At the same time, recent increases in inflation will complicate any policy response to the new variant, Fitch said, “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.”

“We believe central banks could be wary of delaying the normalization of monetary policy settings in response,” it added.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.