Omicron impacted emerging economies to depend on restrictions

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The emergence of the new modification poses new risks to the global economy increase and inflation possibility, as concerns rise about the alternative health risks and numerous countries have required new travel restrictions in recent days.

The economic effect of the Omicron variant of COVID-19 on appearing of economies will depend on a mix of government restrictions, central banks to perform additional policy support to the private sector and public support with social interactions, and the capacity of governments, Moody’s Investors Service said on a report.

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

These restrictions will likely double over the coming weeks until scientists learn more about the variant, it said.

The agency, which is US-based, has detected Omicron cases, prompting new travel curbs, and also said European countries including the UK, Germany,  the Netherlands, France, and Belgium.

Besides, the restraints imposed following a recent rise in Delta infections could be spread and expanded further now. 

Progress will continue in global vaccination efforts and public compliance with the use of tools such as masks and social distancing will be necessary factors in determining the economic impact of the new variant. 

Moody says Countries with an ensured supply of effective vaccines and delivery systems and high levels of vaccine acceptance by the public will remain better placed.

The economic impact will depend on a mix of government restrictions, and on other emerging market countries will differ, public comfort with social interactions, and if needed, the capacity of governments and central banks to grant additional policy support to the private sector. 

Emerging market countries undergoing travel limitations, as well as those reliant on tourism revenue face further downside risks, including South Africa.

The development of the new variant additionally comes throughout the brittle economic recovery, with the extended supply chains, elevated inflation, and labor market curtailments. 

Business interruption resulting from the spread of the new variant could limit the supply chain stresses from easing, dismaying productive capacity, and stoking further cost pressures in sectors with exposure to global supply chains.

On the demand side, fear of infection could intercept a massive proportion of individuals from fastening in economic activity that requires close contact. 

Hence, demand could decrease for services ranging from hospitality to travel, at a time when holiday-related spending would usually ramp up.

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