Moody's Investors Service on Thursday said the credit downturn arising out of COVID-19 will be short-lived but most economies will not return to pre-pandemic activity levels until 2022.
In the year since the World Health Organisation (WHO) declared COVID-19 a pandemic on March 11, 2020, the virus has disrupted the global economy and triggered a credit downturn accompanied by a spike in bond defaults.
"The credit challenges arising from COVID-19 have been substantial, but the credit downturn likely will be relatively short-lived. Risks remain more significant for the sectors most vulnerable to restrictions on their normal activities," Moody's said in a global report in coronavirus.
Stating that most economies will not return to pre-pandemic activity levels until 2022, Moody's said it expects a slow and bumpy global recovery and uncertainty around the macroeconomic outlook remains much higher than usual.
Policy actions will continue to support economic activity and financial markets after the pandemic has eased, it added. Policymakers will continue to support economic activity long after the pandemic has faded, in some cases for years, Moody's said.
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
Moody's expects the incidence and prevalence of the pandemic to gradually decline over the course of this year, as vaccination numbers rise. In turn, this will allow governments to gradually ease lockdown measures.
However, a residual level of COVID-19 likely will persist over time, raising the prospect of global pockets of risk in regions where vaccination progress is slow, and of localised outbreaks.
"In addition, new mutations that increase the virulence or spread of the virus pose a key risk to efforts to normalise 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.