Morgan Stanley: Countries Will Transition Toward Acceptance Of COVID As An Endemic Problem They Must Live With | WHAT REALLY HAPPENED

Morgan Stanley: Countries Will Transition Toward Acceptance Of COVID As An Endemic Problem They Must Live With

Getting Back to Growth Outperformance

The tone in my recent meetings with investors in Asia has been all too familiar. Our constructive views – both cyclically and structurally – are greeted with cautiousness. Earlier in the summer, investors were sceptical about the region’s vaccination efforts. Now, continuing or even tighter restrictions in parts of the region have left them concerned that these measures may not be fully relaxed even as vaccinations reach high levels.

I do understand why investors are cautious – Asia’s growth outperformance in the initial stages of the pandemic has given way to underperformance. Asia was the earliest region to stage a V-shaped recovery. Led by China, GDP climbed back quickly to pre-Covid levels by 3Q20, driven by a sharp rebound in exports and private investment. Aggressive lockdowns kept outbreaks under control, and factories reopened just ahead of the global surge in demand. Asia’s export growth engine powered ahead, with real exports recovering faster than in previous cycles, reaching 5% above their pre-Covid path. As ever, the exports recovery had strong spillover effects into Asia’s capex cycle, and Asia’s investment has already moved to 2% above its pre-Covid trajectory.

However, growth momentum in Asia has slowed in the last two quarters. The emergence of variants, a delay in the start of Asia’s vaccination drive and continued stringent measures to contain Covid outbreaks in several large economies have led to tighter restrictions on mobility from time to time. Consumption has been constrained and is the only component of GDP which remains below its pre-pandemic path.

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