Fitch warns of growth risks due to Omicron

Fitch Ratings (Fitch) foresees the risk to economic growth as well as policymaking globally due to the recently discovered virus variant “Omicron”, which has been designated as a variant of concern (VOC) by the World Health Organisation (WHO).

A statement by Fitch Ratings said: “We currently believe that another large, synchronised global downturn, such as that seen in 1H20, is highly unlikely but the rise in inflation will complicate macroeconomic responses if the new variant (Omicron) takes hold.”

The Fitch statement emphasised 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. But the experience of most large countries suggests that each successive wave of coronavirus infections has diminished growth effects as economies adapt, for example, through changes in working and consumption patterns.

Accordingly, the statement said that the mentioned factors make a repeat of 1H20’s unprecedented global gross domestic product (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 accordance with these circumstances, 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 overburdened, which would necessitate harsher NPIs. The WHO said it is “working with technical partners to understand the potential impact” of Omicron on vaccine effectiveness, Fitch said.