Update Country Report Maldives 29 Nov 2021

Event

Countries in Asia have begun to tighten travel policies as they respond to the emergence of a new coronavirus variant, known as Omicron, which was identified in South Africa. Scientists have cautioned that the new strain appears to be more transmissible than the Delta variant and that its mutations may reduce the efficacy of vaccines substantially.

Analysis

The Omicron variant reintroduces uncertainty into the short-term economic outlook and is set to affect travel reopening plans in Asia. The region would appear to be less initially vulnerable than elsewhere to the variant, owing to already comparatively tight border policies and fewer transport connections with southern Africa, where the variant spread widely before its detection by the South African authorities. Australia and Hong Kong are the only territories in Asia to have confirmed cases of the variant by November 29th, while it has been detected across several European countries. Still, the global spread of the variant is already probably sufficient to ensure its presence in the region.

The emergence of the Omicron variant will delay plans in Asia to loosen border controls and quarantine policies. On November 29th Japan suspended entry by overseas business and student travellers, while Australia is reviewing plans to reopen its border to skilled migrants and students from December 1st. In China, the variant will vindicate the strict travel policies maintained under a "zero-covid" strategy and could set back a plan for the partial reopening of the mainland China-Hong Kong border by end-2021. Singapore and Malaysia reopened bilateral land and air links for vaccinated travellers on November 29th, but both countries are otherwise adjusting testing regimes and other plans for travel lanes.

A tightening of travel and quarantine policies will hurt tourism-reliant Asian economies, which, buoyed by progress on vaccination, have begun to reopen to international visitors. The financial market volatility that will ensue until more becomes known about the Omicron variant will also have a broader effect on corporate and consumer sentiment.

Impact on the forecast

While a full assessment of the variant's economic impact will depend on further research (positively, some evidence points to milder health effects), its emergence increases the risk that more stringent restrictions, including lockdown measures, will be required in Asia over the next 12 months than we currently forecast. The adaptation of vaccines would take at least three months, if required, with rollout on top of that.