A return to strict lockdowns in the face of rising Covid-19 infections would largely hit the same sectors and households that suffered the first time around, said Moody’s Investors Service in a new report.
The report, which examines a hypothetical downside scenario involving new, severe global lockdowns, found that such a move would have uneven effects across countries and sectors.
Moreover, a return to lockdowns “would likely have a disproportionate effect on low-income households, which would further increase inequality,” it said.
“The disparate effects would likely increase awareness of social inequalities and could lead to higher spending by state and local governments to address social needs,” Moody’s said.
As for companies, there would likely be credit rating downgrades on the most vulnerable sectors and issuers, it said.
In particular, Moody’s said that issuers with the lowest credit quality in consumer-sensitive sectors, and companies with weak liquidity, would face the largest credit pressures in a new lockdown scenario.
“In our hypothetical downside scenario, the most vulnerable sectors would be broadly similar to those during the earlier lockdown,” said Laura Perez, associate managing director at Moody’s, in a release.
“However, we would expect more pressures on commercial real estate as compared with our expectations during the first lockdown,” she added.
With a significant proportion of issuers already under negative outlooks, there’s a “limited cushion to cope with underperformance,” Moody’s said.