Outbreaks of the COVID-19 Delta have severe growth implications for Asia-Pacific (APAC) countries. Government restrictions to mitigate the spread of the virus have already dented air travel in the region, according to BloombergNEF.
APAC countries, including China, Japan, Korea, India, Australia, and New Zealand, among others, reduced 11.1% of flights scheduled to depart this week, compared to this time last week. This has profoundly impacted jet fuel demand, slashing 170,000 barrels per day less - China led the cuts.
Flight departures for APAC countries decreased by 2,250 on average each day WoW, one of the most significant declines in months. The collapse was evident in China, where 2,380 departures were scrapped each day this week as the government discouraged travel. Some airports in the country were closed to mitigate the spread of the virus.
A global summary of flight departure shows North America led growth while APAC countries led declines.
After COVID was quickly suppressed in China through mass-scale lockdowns, or at least that's what was displayed on national media, Chinese authorities are battling new outbreaks in 17 provinces. Beijing is canceling large events and suspended planes and trains from entering the city to prevent infections.
Morgan Stanley's Robin Xing recently told clients that Delta's resurgence in China has forced his team to slash growth forecasts for the country to 5.1% for 3Q and 8.2% for the whole year. They expect another 50bp RRR cut and an increase in infrastructure spending in the coming months to cushion the decline in economic activity.
Xing shows provinces where Delta variant resurgence has been observed. Some of these regions are major manufacturing hubs and port areas that could impact global economic recovery.
High-frequency data shows inter-and intra-city travel in the country has slowed in the last few weeks.
Other high-frequency data shows domestic air travel has begun to wane.
Morgan Stanley is not the first bank to cut growth forecasts in China. Earlier this week, Goldman Sachs And Bank of America slashed growth estimates because the Delta variant continues to spread and government restrictions are hampering the economy.
The new flare-up presents challenges for the Communist Party who may have to resort to fiscal support and infrastructure investment to boost the economy. Premium subs were briefed on the country's credit impulse turning negative earlier this year and bottomed in July.
To sum this up, the spread of the Delta variant across Asia has resulted in governments taking preventive measures, which hurts air travel and soon the broader economy as large banks downgrade China's growth forecasts.