Virendra Pandit
New Delhi: The credit downturn triggered by the Covid-19 pandemic will be short-lived but most economies are unlikely to return to pre-pandemic activity levels until next year (2022), global rating agency Moody’s has said.
Since March 11, 2020, when the World Health Organisation (WHO) declared the outbreak of Covid-19 a pandemic, the killer virus has disrupted the global economy and caused a credit downturn accompanied by a spike in bond defaults.
Despite vaccinations, many economies continue to reel under recession.
“The credit challenges arising from Covid-19 have been substantial, but the credit downturn will likely be relatively short-lived. Risks remain more significant for the sectors most vulnerable to restrictions on their normal activities,” Moody Investors’ Service said in a global report.
It expects a slow and bumpy global recovery and uncertainty around the macroeconomic outlook remains much higher than usual.
Policymakers will continue to support economic activity and financial markets long after the pandemic fades away, which may take many years.
Moody’s expects the incidence and prevalence of the pandemic to gradually decline in 2021, as vaccination numbers rise. In turn, this will allow governments to gradually ease lockdown measures. However, a residual level of Covid-19 likely to persist, raising the prospect of global pockets of risk in regions where vaccination progress is slow, and of localized outbreaks.
“In addition, new mutations that increase the virulence or spread of the virus pose a key risk to efforts to normalize conditions. Rather than eliminating the virus, we expect to ‘learn to live with it’ at low case rates,” it added.
The rating agency said it took several rating actions in response to the credit consequences of the pandemic and does not expect to conduct another wholesale review of credit ratings this year unless there is a significant shock to the global economy or to financial markets, or a shock resulting from a dramatic change in the trajectory of the virus.
