Omicron effect subject to curbs, policy support

New Delhi: The economic impact of the Omicron variant of Covid-19 on emerging economies will depend on a mix of government restrictions, public comfort with social interactions, and capacity of governments and central banks to provide additional policy support to the private sector, Moody's Investors Service said on Wednesday.

The emergence of the new variant poses new risks to the global economic growth and inflation outlook, as concerns mount about the variant's health risks and several countries have imposed new travel restrictions in recent days.

These restrictions will likely increase over the coming weeks until scientists learn more about the variant, it said. Continued progress in global vaccination efforts and public compliance with the 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," Moody's said.

The US-based agency said European countries including the UK, Germany, France, the Netherlands and Belgium have detected Omicron cases, prompting new travel curbs. Moreover, the restrictions imposed following a recent rise in Delta infections could now be further extended and expanded. China's zero-tolerance Covid-19 policy will further delay relaxation of rules surrounding international travel in the face of the Omicron variant. If the variant is discovered in the country, authorities likely will increase the severity of restrictions, it said. "The economic impact on other emerging market countries will differ, and will depend on a mix of government restrictions, public comfort with social interactions, and the capacity of governments and central banks to provide additional policy support to the private sector, if needed. Emerging market countries facing travel bans, including South Africa, as well as those dependent on tourism revenue face further downside risks," Moody's said in a report.

The new, and potentially more contagious variant Omicron, was first reported to the World Health Organization (WHO) from South Africa on November 24. It has since been identified in about 17 more countries including Botswana, Hong Kong, Israel, Canada, Spain, Portugal, Germany and Australia.