Geo-political risks: Taiwan a sticking point, not a danger point yet Covid-19: Omicron variant fuels uncertainty moving into 2022

Asian economies:

China: what does the cut in reserve requirement signal?

Central bank cuts reserve requirements

• The People’s Bank of China (PBOC) will cut the reserve requirement ratio (RRR) by 50 basis points, with effect 15^th December. It estimates that the move will inject CNY1.2 trillion of liquidity into the economy.

Assessment: worried policy makers will add further support to economy

• The PBOC had flagged a shift to greater monetary support in its latest monetary policy report last month. Last Friday, Prime Minister Li Keqiang had mentioned a possible cut in reserve requirements, after raising concerns about the weakening economy in late November.

• However, all sides had previously shown a reluctance to use aggressive monetary tools to support the economy, given President Xi Jinping’s strictures against credit growth and determination that leverage be reduced in the economy. It is also noteworthy that the decision to ease has come even before the Central Economic Work Conference gets underway next week: one would have expected major turns in policy to have come after that major conclave.

• All this suggests to us that the debate within China over whether and how much to ease seems to have been finally won by those seeking quick economic relief and who advocate that structural issues such as excessive leverage be given lower priority for now. The economy must have turned out to be weaker than the leaders had expected, tilting the view of the balance of risks towards worrying more about growth.

• Moreover, we should also expect more easing measures to be announced in coming weeks. The RRR cut by itself will not be enough – surveys showed banks more reluctant to lend because of worries over financial stresses in the real estate sector, so access to liquidity alone will not boost economic activity unless banks’ perception of risks are addressed with more stimulus. Accelerated spending on infrastructure is likely as is some easing of the unusually austere fiscal stance.

India: Signs of sequential and cyclical moderation

Activity indicators point to robust though moderating growth

• The manufacturing purchasing manager index (PMI) firmed up further in November (57.6) (October: 55.9). New orders expanded for the 5^th successive month and at the sharpest pace since February. Export orders were up slightly. Input price pressures persisted at October’s 92-month high, with firms raising prices as well. Employment picked up weakly. Businesses remained upbeat but confidence slipped to a 17-month low as firms worried about rising prices damaging demand.
• Services PMI edged down to 58.1 in November, from 58.4 in October. New orders rose at a broadly unchanged pace from October. Input prices intensified further in November at the second-strongest pace in a decade. Firms absorbed the rising costs, so output price inflation eased from October. Business confidence climbed to a 3-month high but the overall level of sentiment is still below the historical average.
• GDP growth eased to +8.4% y/y in 3Q21, from +20.1% in the previous quarter. PCE moderated to +8.6% y/y (2Q21: +19.3%), as did GFCF which eased to a still-respectable +11.0% (2Q21: +55.3%). Government spending was the only component that accelerated (+8.7%), following the uncharacteristic weakness in the previous quarter (-4.8%). Exports were up 19.6% y/y, while imports expanded 40.6% y/y as demand normalised with the easing of curbs.
• Gross Value-Added (GVA) growth (+8.5%; 2Q21: +18.8%) moderated. By sector, agriculture held up (+4.5%) while manufacturing (+5.5%), construction (+7.5%) and mining (+15.4%) pulled back from the base effects-fuelled highs in 2Q21. The services sector expanded 10.2% y/y, slightly down from +11.4% in the earlier quarter. Domestic trade (+8.2%) decelerated sharply, offset by professional services (+7.8%) and government services (+17.4%) that firmed up.

Source: CMIE

• GST collections were broadly unchanged for October (INR1.3tr). However, e-way bill generation in the first 4 weeks of November (the final tally, which includes 29^th and 30^th November, is unlikely to move the needle on the final figure) tailed off sharply to 55.8 million, suggesting GST revenues are set to pull back in the near-term.
• Non-food credit growth ticked up 6.8% y/y in October, from +6.7% in September. Lending extended to agriculture (+10.2%), industry (+4.1%) and services (+2.9%) firmed up. In the services segment, the domestic trade sector saw a meaningful uptake (+7.1%), alongside a meaningful rebound in credit demand by NBFCs (+1.4%). Household credit growth, however, softened to +11.7% y/y (September: +12.1%), with a broad-based decline in loans for housing (+8.4%), autos (+8.4%) and other personal loans (+17.8%).

The policy side is mixed

• Halfway through the fiscal year, the deficit came in at just 36.3% of budget estimates, up a smidgen from 35% in September. Stellar revenue mobilisation (with net tax revenues at 68.1% of budget estimates, up 10pp from September). Expenditure realisation, at 52.4% of BE (September: 46.7%) was more sluggish, with capex being the laggard (45.7% of BE). On an annual basis, net taxes climbed 13.0% y/y in October, outpacing the 10.3% increase in public spending. As a share of GDP, the fiscal deficit came in at 2.5%.
• The government is reportedly deferring implementation of labour code reforms till after the pivotal Uttar Pradesh state elections. This followed their back-down on agricultural reforms in the face of farmer protests. The central government continues to insist that state governments should finalise the implementing regulations for the labour code, which consolidates and simplifies more than 3 dozen archaic laws that hobble growth. Although the labour codes were approved by parliament last year, state government actions are needed for actual implementation – and that has stalled of late.

Assessment: Three downside risks to watch for

• With the snap-back from pandemic slowdown now over, can capital spending take up the slack?: The moderation in services PMI and e-way bill generation shows that India has passed “peak growth”. As base effects dissipate, corporate capital spending has to be the next driver of growth, since there is not much more excess household savings to draw down and the government is likely to pursue fiscal consolidation in the coming fiscal year starting April 2022. But it is still not clear how much the pandemic has undermined private sector confidence.
• More fiscal largesse to win state elections? The uncharacteristic concession to the protesting farmers tells us that political leadership is greatly focused on winning the Uttar Pradesh state assembly election. Anything short of an outright victory for his BJP will be construed as a blow to Prime Minister Modi., so we can expect populist measures by the government to shore up its support. With buoyant net taxes keeping the fiscal deficit under control, there could be a temptation to step up spending.

Source: CEIC. FD = Fiscal Deficit; NT = Net Taxes

• The reform cycle has probably ended: The Modi government is now about half way through its second term and reform exhaustion is setting in. Moreover, the opposition is now training its sights on the labour reforms in the lead-up to the Uttar Pradesh state elections (held in stages over February and March 2022). Other opposition groups are mobilising to protest against Modi’s controversial citizenship amendment act as well, which has been criticised in some quarters as provocatively anti-Muslim. Modi’s priority will now be on winning the many state elections that are due over the next 2 years and on the 2024 general elections after that.

South Korea: On track for policy normalisation with growth on solid footing

• The manufacturing PMI edged up to 50.9 in November from 50.2 in October. New orders grew for the 14^th successive month, but the pace of increase was the softest in the sequence because of supply chain disruptions. Export orders, however, saw a faster rate of expansion. Employment contracted at the quickest pace in 10 months. Input prices were up sharply amid shortages and bottlenecks while output price inflation rose to its highest since July 2020. The future expectations index rose to its highest since August in a sign that the supply-side bottlenecks will ease further.

• Export growth accelerated to +32.1% y/y in November from +24.1% y/y in October, taking export value to USD60.4bn in Nov 21, a record monthly figure. 13 out of 15 key sectors posted a further expansion, most notably semiconductors (+40.1%), petrochemicals (+40.1%) and shipbuilding (+237.6%). Imports were equally resilient, clocking annual growth of 43.6%, which is just shy of August’s record-breaking figure (+44.0%). Capital goods imports in the first 25 days moderated slightly to a still-sanguine 27.5% y/y in November (October: +28.4%).

• Industrial production expanded +4.8% y/y in October, up from the +1.4% y/y in September. ICT Manufacturing (+22.3%) continued to make big gains, while electricity & gas (+4.9%) also recorded a further expansion. Mining and manufacturing (+4.5%) rebounded anew.

• Retail sales surged +14.4% y/y in October as more consumers spent more due to the holiday season.

• Business confidence for SMEs rose to 83.5 for December, up 2 points from November. This came after two consecutive monthly slides. The reading is still notably subpar. Manufacturing (84.2; +0.6) was more optimistic than non-manufacturing (82.0; +2.7) SMEs.

• CPI inflation rose further to a decade-high of +3.7% y/y in November, beating October’s +3.2% y/y. This was led by food (+6.1%) prices, as well as transport (+12.9%). Eating out (+3.8%) also reported further expansions, likely due to the relaxation of restrictions into the “new normal” at the beginning of November. Agricultural products (+18.1%) also marked a significantly stronger uptick. Core inflation however eased to +1.9% y/y from +2.4% y/y.

Source: CEIC. Target refers to the BOK’s inflation target.

Assessment: South Korea to end the year on a strong note

• All indicators point to an improving economy: South Korea is poised to book annual growth upwards of 4% this year. The record-breaking monthly export figure is an encouraging note, and the holiday season is also likely to encourage spending, and even SMEs are positive on December’s outlook. Easing supply shortages should provide a second wind to Korea’s tech-intensive and chips-oriented economy moving into 2022, where the contrast with Taiwan has been marked, despite the centrality of tech in both economies.

• Inflation risks will pressure the Bank of Korea (BOK) into tightening further next year: We reiterate our forecast for 3 rate hikes in 2022, starting in 1Q22 before the incumbent governor retires. Signs of overheating remain, with the decade-high inflation print likely to be a further incentive to tighten in the January monetary policy meeting, if not the next. While core inflation was encouraging this time around, and omicron has knocked off more than 10% of crude oil prices, it is likely that demand will remain robust while oil prices will stabilise – leading to a slightly softer, but still elevated, December inflation. And finally, Powell’s recent hawkish comments on the Fed tightening credit earlier than later is likely to prompt the BOK to follow suit.

• The longer-term question is how high Korean interest rates will go. High debt (household debt has surged past 100% of GDP to rank as one of the highest in the rich world) and lofty property prices argue for monetary tightening. But the cyclical deceleration expected in 2022 raises questions as to how many rate hikes are actually needed. Our view is that Korea’s rate-hike cycle will be a relatively short one, ending around end-2022 with the benchmark rate at 1.75%.

• The resurgence of COVID-19 in Korea remains a key risk to growth: Caseloads surpassed 5,000 during the past week, a record for the country. However, President Moon is insistent on a return to life without restrictions and appears willing to tolerate a high infection rate. The government is sticking to its guns even with intensive care unit (ICU) utilisation at high levels. However, with doctors at leading hospitals complaining that they have to triage patients in ICUs, the authorities may have little choice but to reimpose some restrictions, especially now that the Omicron variant has emerged. That would hurt growth to some extent but we suspect that strong export growth and highly calibrated restrictions could mitigate the impact on growth.

Indonesia: Primed to outperform in 2022

• The manufacturing PMI eased to a still-respectable 53.9 in November, coming off the record-high in October of 57.2. New orders rose for the 3^rd successive month, but this masked underlying weakness in export orders, which fell for the 5^th month running. Employment increased marginally while input prices rose to an 8-year high, and this translated into higher output charges as well. Business sentiment remains positive but slipped to an 18-month low, as respondents were cautious over the longer-term economic scarring from the virus.
• Inflation was unchanged in November at +1.7%. Food, beverage and tobacco (+3.0%) and information communication (+0.0%) were unchanged; clothing (+1.3%), health (+1.7%) and education (+1.6%) eased a tad while the other components quickened slightly – accommodation (+0.7%), household equipment (+2.5%), transport (+1.4%), recreation and culture (+1.0%), restaurants (+2.7%) and personal care (+1.1%). Core inflation came in at a 5-month high in November (+1.4%) (October: +1.3%), but remained moderate overall.

Source: CEIC. Target refers to the midpoint of BI’s inflation target corridor.

• Bank Indonesia (BI) hinted at shifting its priorities in 2022 from shoring up growth to safeguarding stability as the pandemic fades. BI Governor Perry suggested that BI’s first move in normalising policy would be to drain excess liquidity in the banking system by offloading some of the government bond holdings, while keeping interest rates low until inflation rose significantly. Separately, BI mopped up IDR58tr of government securities via private placement, bringing its total purchases to IDR201tr out of the projected IDR215tr this year.
• Fitch affirmed Indonesia’s sovereign rating at BBB, with a stable outlook, citing the favourable growth outlook as well as a manageable debt-to-GDP ratio. Despite the added pressure on the government’s balance sheet stemming from the pandemic, Fitch opined that the tax reforms, particularly the VAT hike that kicks in from April 2022, should help the authorities meet their fiscal consolidation targets. A stronger recovery implies a lower fiscal deficit for this year (Budget estimate: 5.8% v Fitch: 5.4%) and the next (4.9% v Fitch’s 4.5%).
• The constitutional court took issue with the Omnibus Bill, the flagship reform of the Jokowi administration. At the heart of the matter is the unprecedented use of the omnibus format by the government to revise a bevy of laws at one go, as opposed to individual revisions that would have been onerous and time-consuming. The court also questioned the differences between the final text of the law versus the version approved by lawmakers, even though these differences are not considered material as they were due to typos and formatting errors. In response, Law Minister Yasonna Laoly intends to revise the 2011 Law on Formulating Laws and Legislation to address the procedural deficiencies that the court found troubling. The court gave the government a 2-year grace period to rectify the laws.

Assessment: Indonesia’s prospects look good moving into 2022

• Economic normalisation underway: The totality of the data points to a healthy economy. However, the persistently low inflation rates do imply significant slack within the economy. This is symptomatic of an economic expansion that is below its potential rate. We retain our full-year growth forecast of 4% for this year and 5.5% in 2022, though the Omicron variant could depress growth a tad in 1Q22.
• Expect BI to follow the Fed in tightening policy: The Rupiah weakened only marginally, and in line with other Asian currencies as markets priced in the Fed bringing forward the first hike to mid-year following Fed Chair Powell’s remarks on accelerating tapering. This suggests that, so long as the Fed communicates its intentions in advance, the knock-on effects on the Rupiah can be managed. After all, Indonesia’s growth and external accounts fundamentals remain relatively good compared to other emerging economies. BI’s policy reaction to the Fed will be determined by inflation outcomes and whether capital outflows pressure the Rupiah. Inflation will probably remain benign, rebounding to just above 2% as growth rebounds, slack diminishes and as corporate pricing power strengthens with economic recovery. BI will match Fed rate hikes so as to preserve yield differentials with the US, as we argued in previous weeklies. As such, we do expect BI to start raising rates around mid-2022.
• Court ruling will not reverse vital labour reforms: The Law Minister’s suggested legal amendments will almost certainly satisfy the courts. In fact, his proposed legal changes might even pave the way for more Omnibus Bills which could result in speedier passage of other reform efforts in future. Thus, this legal wrinkle will delay but not derail the beneficial impact of labour reforms on attracting investment and raising Indonesia’s longer-term growth potential.

Malaysia: On track for a strong finish

• The manufacturing PMI was up marginally in November (52.3) from October (52.2). New orders expanded further, but new export orders fell for the 7^th month in a row. There was a fractional improvement in employment – the first since March, though firms also reported difficulty in hiring given restrictions on the entry of migrant workers. Input costs climbed further in November at the fastest pace since May, translating into hefty increases in output charges, which came in at a 7-month high. The level of business optimism rose to its highest since April as firms looked forward to easing restrictions.
• Inflation accelerated in October (+2.9%) (September: +2.2%). Food (+2.0%), clothing (-0.4%), accommodation (+3.2%), household equipment (+2.1%), transport (+11.3%) and restaurants (+0.6%) firmed up slightly. Non-alcohol beverage (+0.2%), communication (+0.0%), education (-0.1%) and personal care (+0.6%) were unchanged while alcohol (+0.3%), health (+0.2%) and recreation (+0.2%) edged down just marginally. Underlying cost pressures remain soft, with core inflation being range-bound for most of this year (October: +0.7%) (September: +0.6%).
• Exports firmed up slightly in October (+25.5%) (September: +24.7%), with broad-based strength across machineries (+10.3%), chemicals (+63.6%), petroleum and petroleum products (+115.7%), electronics (+8.8%) and CPO (+44.9%). Imports were also buoyant, rising 27.9% y/y and up further from 26.5% in September. Capital goods import growth (+15.1%) eased, but intermediates (+35.1%) and consumption goods (+10.8%) strengthened. The trade surplus was unchanged at a massive MYR26.2bn in October.

Assessment: 4Q21 growth should surprise on upside

• With its high leverage to global demand, the economy is set for relative outperformance in the near-term. Covid-19 caseloads have been range-bound after peaking in late-August, and with close to 80% of the population now fully vaccinated, Malaysia should be able to weather new variants such as the omicron one better than other emerging economies. The underlying slack in the economy will keep core inflation under control.

The Philippines: Modest upside surprise this year

• The Philippines’ manufacturing PMI rose to 51.7 in November, from 51.0 in October. New orders grew for the first time since March, though the pace of growth was anaemic. Voluntary resignations and a paucity of skilled workers meant that job shedding persisted, though only modestly and at the softest pace for four months. Input inflation accelerated to its sharpest since March 2018, bringing the current spell of inflation to 19 months. Selling prices rose too, and at a quicker pace as firms passed on higher costs to consumers. Firms remain upbeat over output expectations, with the level of sentiment at a 21-month high, although it still remains below the historical average.
• Credit growth picked up further in October (+3.5%) from September (+2.7%). Lending extended to manufacturing (+5.0%), wholesale and retail trade (-0.7%), finance and insurance (+11.5%) and real estate (+7.6%) perked up whereas the reverse is true for accommodation and utilities (+2.1%) and construction (+4.2%). Consumer loans saw a slower rate of contraction in October (-7.2%).
• Economic managers expect another round of easing restrictions from January 2022, as infections tumble further. Manila, the economic epicentre, is operating under Level 2 of the multi-tiered alert system and the authorities expect the capital region to move to Level 1 with falling caseloads and rising vaccination rates. Bottom-up evidence suggests that consumer psychology is in much better shape, with footfall at retail malls (63%; October: 35%) and fast food chains (78%; Oct: 69%) and air travel (40%; Sep 21: 16%) recovering sprightly.

Assessment: Modest upside surprise this year

• The economy is set to surprise on the upside albeit modestly with falling caseloads providing a second wind to the economy in 4Q21, alongside the spirited performance by remittances and electronic exports. The rebound in the manufacturing PMI and credit growth is indicative of an upbeat recovery, which we expect to continue in the near-term. Full-year growth of 4.5%-5% appears achievable: Growth could well come in at the upper end of our forecast corridor.
• But the omicron variant is a risk as another wave of infections would again overwhelm dilapidated hospitals and force the authorities to impose restrictions on activity yet again. Having exhausted its policy space, there would be no good options for policymakers to gin up the economy without jeopardising macro and currency stability, particularly as the Fed is poised to bring forward the normalisation of monetary policy from mid-2022. For now, we hew to our forecast for 2022 (CAA estimate: 6%).

Source: CEIC

Thailand: New variant could defer recovery by several quarters

• Thailand’s manufacturing PMI softened to 50.6 in November, from 50.9 in October. New orders were subdued, thanks to lingering disruptions induced by the pandemic. Export orders fell at a faster rate by the same token. Employment levels dipped, though this stemmed from voluntary resignations, as opposed to job shedding by employers. Both input and output charges continued rising, with the latter booking a record increase. Business confidence climbed to its third-highest on record on the back of easing restrictions.

• Private consumption fell 4.3% y/y in October, easing from a -5.9% y/y fall in September. All consumption categories saw improvements when compared to September as the pandemic restrictions are gradually lifted and vaccination rates continue to rise. The decline for durables (-6.9%), non-durables (-6.9%) and services (-1.5%) eased while semi-durables logged positive growth (+3.0%). Sequentially, consumption grew 1.6% m/m sa, slowing from 3.9% in the previous month.

• Private investment grew 6.9% y/y in October, slowing from +7.4% y/y in September. The decline can be attributed to slowing machinery sales (+12.1%) even though capital imports picked up (+18.8%). Meanwhile, investment permits for the construction sector dipped (-0.5%) in tandem with lower sales of construction materials (-1.6%). Sequentially, investments slipped back into contraction at 1.2% m/m sa, down from +1.5% m/m sa in the previous month.

• Manufacturing output expanded anew at 2.9% y/y in October, improving from +0.3 y/y in September. Sequentially, manufacturing grew 2.7% m/m sa, edging down from +6.6% m/m sa in September.

• Exports grew 17.0% y/y in October, down slightly from +17.8% y/y in September. Manufactured products (+21.2%) and agro industrial goods (+20.8) maintained growth momentum, while exports of mineral products (+157.7%) spiked as commodity prices remain elevated. Imports edged up to +34.6% y/y in October, from +30.3% y/y in September. The increase was led by imports of fuel lubricants (+117.6%) and capital goods (+33.5%), which was boosted by imports of newly released mobile phones. Other categories, such as consumer goods (+42.9%) and intermediate products (+34.9%) held up reasonably well. The trade surplus was USD3.8bn in October, slipping from USD4.0bn in September.

• Public expenditure continued to support the economy, expanding year-on-year for both current and capital expenditures due to the low base effect coupled with a high disbursement rate this year.

Assessment: Timeline for recovery pushed back by several quarters

• Within Southeast Asia, it is Thailand’s already-patchy recovery that is most at risk – if the omicron variant turns out to be deadly and if the authorities revert to their old play-book of rigorous restrictions to contain the virus. This resultant blow to consumer confidence, tourism and production activities would undermine our view that the Thai economy could outperform next year. Already, the tepid increase in visitor arrivals from Europe has slipped in recent weeks due to resurgent infections in several European countries. Thailand has already tightened some border restrictions in the past week in response to the Omicron variant. We expect more travel restrictions to be enacted in coming weeks. If sustained for a long period, that would derail prospects for tourism in 2022. Until there is more clarity on the impact of the omicron variant, we are more cautious on the kingdom’s growth prospects moving forward.

Vietnam: Economy remains fragile

• Vietnam’s manufacturing PMI ticked up to 52.2 in November from 52.1 in October. New orders were up for the second successive month at the quickest pace since April, thanks to the rolling back of restrictions. Similarly, export orders rose again, albeit modestly. A shortage of labour meant that manufacturers were unable to expand staffing despite higher workloads, with employment falling markedly, extending the current streak to 6 months. Input inflation was at its highest since April 2011, and the same can also be said for output charges, which firmed up significantly from October. Business sentiment slid but firms were upbeat over higher output in anticipation of easing restrictions moving forward.
• Consumer price inflation edged up to 2.1% y/y in November (October: +1.8%). The food component (-0.1%) slipped into the red, led by disinflation in food (+3.9%) and deepening deflation in foodstuff (-1.7%), more than offsetting the rise in restaurants (+2.3%). Other components broadly strengthened albeit modestly – beverage (+2.4%), garments (+1.0%), housing and construction materials (+1.5%), household equipment (+1.0%), transport (+20.7%), telecommunications (-0.7%), recreation (-0.4%) and other goods and services (+1.4%). Health (+0.2%) was unchanged while education (-3.1%) fell further. Core inflation perked up slightly in November (+0.6%) from October’s +0.5%.

• Export growth accelerated in November (+18.5%) (October: +6.1%), booking the first double-digits gain in 5 months after lockdowns knocked the economy askew. Textiles (+24.9%), computer electronics (+9.0%), wood products (-7.4%) and mobile phones (+22.7%) all quickened while iron and steel moderated to a still-sizeable 112.8% expansion. Imports were more resilient, rising 20.8% y/y and up strongly from +7.8% in October. The trade surplus narrowed to USD100mn, from USD2.7bn in October.
• Factory output increased for the first time in 5 months in November (+1.6%) (October: -6.1%). Mining quickened, but remained in contractionary territory (-0.7%), as did electricity (-7.1%). Utilities and waste management rebounded 1.5% y/y. Manufacturing also clocked a moderate recovery (+3.0%), led by electronic components (+14.0%), refined petroleum (+10.3%), cement (+10.7%) and steel and iron (+11.8%). Consumer electronics was the main drag on the index, declining 12.2% y/y though that is still the best showing in 5 months.
• Retail sales shrank 12.2% y/y in November, better than October’s showing (-16.0%). Spending on goods (-5.9%), accommodation (-33.4%), tourism (-55.9%) and other services (-38.0%) all fell but the degree of contraction narrowed from October.

Assessment: New wave of infections could weigh on incipient recovery

• Backward-looking indicators suggest the economy was on the mend: Activity indicators suggest the economy was making up for lost ground, with an across-the-board improvement, be it in retail sales, PMIs or industrial output. As an up-and-coming manufacturing powerhouse, the key risk stems from the need to impose lockdowns to curtail the spread of the virus, at the expense of growth as a result of the disruptions to trade and manufacturing operations. Compounding the problem further is the shortage of workers in the urban centres following an exodus sparked by the lifting of restrictions in early-October. The labour shortage is the key downside risk to our growth forecast in Vietnam, which could easily hobble the recovery moving into 2022, particularly if the authorities resort to draconian measures to keep mobility in check.
• New wave of infections could hit growth again, but impact likely more modest: New infections soared to another record-high yet again, but the impact on growth will be more contained. For starters, vaccination rates have climbed sharply – 54% of the total population have been double-jabbed (75% for first jab), and the authorities are already planning the rollout of booster shots this month. Death rates have also trended downwards, after peaking in tandem with the initial wave in September, which is indicative of an improving pandemic management.
• There is also a realisation that firms and workers alike have coped and adapted to restrictions, implying that every round of tightening restrictions knock an increasingly small percentage points off growth. In that vein, the new Omicron variant will probably spark a fresh wave of infections as is panning out in South Africa at the moment, but is unlikely to entail a hit to growth of the same magnitude vis-à-vis the previous wave in 3Q21.