The Omicron COVID-19 variant could hurt global growth prospects while also pushing prices higher, rating agencies Fitch Ratings and Moody's Investors Service said on Monday, after the World Health Organization said the variant carried a very high risk of infection surges.
"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, told Reuters in emailed comments.
The variant is also likely to hit demand during the upcoming holiday travel and spending season, according to Duggar.
"If the new variant affects global market risk appetite, it would cause further financial stress for debt issuers with large financing needs. For example, emerging market countries that rely on international market borrowing may face heightened refinancing risks", she said.
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.
More countries closed borders on Monday, casting a shadow over economic recovery from the two-year pandemic. Big airlines acted swiftly to protect their hubs by curbing passenger travel from southern Africa, fearing that a spread of the new variant would trigger restrictions from other destinations beyond the immediately affected regions, industry sources said.
U.S. President Joe Biden urged Americans not to panic and said the United States was working with pharmaceutical companies to make contingency plans if new vaccines were needed.
Biden said the country would not go back to lockdowns this winter, but urged people to get vaccinated, get their boosters and wear masks.
An infectious disease expert from South Africa, where scientists first identified Omicron, said it was too early to say whether the variant caused more severe symptoms than previous variants, but it did appear to be more transmissible.
The experience with past variants suggests that, even with some restrictions on international travel, the spread of the Omicron variant may be hard to stop, Duggar told Reuters.
"Should the new variant lead to another rising wave of COVID infections, the hardest-hit economies will be those with lower vaccination rates, higher dependence on tourism and lower capacity to offer fiscal and monetary policy support to offset the growth impact of the new wave of infections."