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New Covid-19 variant raises risk of recovery limbo

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A man is seen waiting at the arrival area of terminal 5 following the lifting of restrictions on the entry of non-U.S. citizens imposed to help curb the spread of the coronavirus disease (COVID-19), at Heathrow International airport, in London, Britain November 8, 2021.

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LONDON, Nov 26 (Reuters Breakingviews) - A new Covid-19 mutation is threatening to suspend the world in coronavirus limbo. Countries including Britain and Singapore have imposed bans on travellers from South Africa and other nations where a concerning new variant has been detected. A highly infectious strain is a particular problem for economies with low vaccination rates. If it evades vaccines, another round of lockdowns could be on the cards at a time when governments and central banks have depleted firepower.

The mutation, known as B.1.1.529, was identified this week. It has now been detected in Botswana, South Africa, Hong Kong and Israel. Although the number of cases is still small, there are two big concerns. The mutation appears more infectious than the dominant Delta variant. And its spike proteins are dramatically different to the ones in the original Covid-19 virus, raising the risk that it undermines the effectiveness of existing vaccines.

Countries with low vaccination rates are most at risk. Less than a quarter of South Africa’s population is fully jabbed, and the country’s dense population means that highly infectious mutations take off faster than elsewhere. But European countries also look vulnerable. Austria has already imposed a national lockdown due to soaring infections and stubbornly flat vaccine rates. Meanwhile China, which has controlled the virus by largely shutting out foreign visitors, may be minded to further extend its travel ban.

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In contrast to February 2020, when many countries were slow to respond to the pandemic, governments are better prepared. They have developed vast testing capabilities and stocked up on protective equipment. But the reaction to the prospect of a new round of travel bans highlights the fragility of the recovery. Shares in British Airways owner International Consolidated Airlines (ICAG.L) were down 12% on Friday morning, while easyJet (EZJ.L) stock fell 10%. The increased risk to emerging markets was evident in the decline of currencies like the South African rand.

Moreover, central banks have spent a lot of their firepower managing the economic fallout from the virus. With inflation spiking in the United States and Europe, they have limited ability to delay planned increases in interest rates or unleash further stimulus. It’s too early to say whether such interventions will be necessary. But the risk of the world’s Covid-19 recovery stalling has increased.

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CONTEXT NEWS

- Stocks tumbled and government bonds rallied on Nov. 26 as a newly identified and possibly vaccine-resistant coronavirus variant detected in South Africa prompted Asian and European countries to tighten travel restrictions, stoking fears of a fresh hit to the global economy.

- Scientists said the variant, which has also been found in Botswana and Hong Kong, has an unusual combination of mutations and may be able to evade immune responses or make it more transmissible.

- Britain on Nov. 25 announced it was temporarily banning flights from South Africa and several other African countries and asked returning British travellers from those destinations to quarantine. Singapore and Italy also imposed entry bans on travellers from South Africa and nearby countries.

- South Africa’s rand dropped more than 1.5% to a one-year low on Nov. 26. Bets on rate hikes also retreated as two-year U.S. Treasury yields fell 6 basis points, the sharpest drop since March 2020.

- The pan-European STOXX 600 index fell 3.3% by 0819 GMT on Nov. 26, on course for its worst session in over a year, while the UK's FTSE 100 dropped 3.3%. Germany's DAX fell 3.4% and France's CAC 40 shed 4.3%. Travel & leisure stocks were especially hard-hit. Shares in British Airways owner International Consolidated Airlines and easyJet fell over 12%, while cruise operator Carnival and travel company Tui fell between 12% and 15%.

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Editing by Peter Thal Larsen, Karen Kwok and Oliver Taslic

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