The emergence of the new COVID-19 variant, called Omicron, could jeopardize the world’s economic recovery from the coronavirus pandemic, as economies reinstate travel restrictions to combat Omicron’s spread. But, in a report on November 28, Morgan Stanley said economic fallout would likely be limited in Asia, largely owing to high vaccination rates.

“Relative to the outbreak of the Delta variant in Asia in mid-2021, we now have much higher levels of vaccination,” Morgan Stanley researchers said. “Out of 12 economies, 10 already have at least 70% of their population inoculated with one dose of vaccine.”

The 12 economies Morgan Stanley lists are Korea, Malaysia, Singapore, Australia, China, Japan, the Euro Area, India, the U.S., Hong Kong, Indonesia, and the Philippines, with the latter two achieving only 63% and 56% coverage, respectively. But Morgan Stanley predicts Indonesia and the Philippines will achieve 100% first-dose coverage over the next three months.

Currently, little is known about the efficacy of vaccines on the new variant. Vaccines have proved less effective in preventing infection from previous COVID-19 variants, when compared to their efficacy at warding off the original virus, but the jabs have reduced the severity of infections from variants. Morgan Stanley is optimistic, saying “it is possible that the new variant may reduce but not eliminate vaccine efficacy.”

The bank expects Omicron will pose an immediate short-term risk to economies in Asia, with consequences most visible in the first quarter of next year, “depending on the evolution of the outbreak.” Morgan Stanley expects Asia will hold 1.9% quarter-on-quarter growth for the three months to December.

Morgan Stanley’s predictions, however, are based on a major caveat: that Omicron proves to be “not more challenging” than the Delta variant, which became the world’s dominant strain after emerging in India late last year. Although early indications suggest the new variant has higher transmissibility than the Delta variant, scientists say they need two weeks to better understand the virulence of Omicron.

Local responses to the pandemic will likely differentiate the economic fallout of Omicron across Asia, too. Omicron poses a greater immediate risk of disruption to India and ASEAN (the Association of Southeast Asian Nations), Morgan Stanley says, because those economies have relatively open borders and have “tended to tighten restrictions when cases rise sharply.”

Such a move could disrupt global supply lines, if manufacturers in India and ASEAN are forced to suspend production. However, manufacturing in China is unlikely to be directly impacted by Omicron, owing to the country’s strict border controls and “COVID-zero” policy.

“We do expect that the impact [of Omicron on supply chains] will be temporary—global demand is still running red-hot, and…there is a backlog of orders to work through,” Morgan Stanley says.

Meanwhile Goldman Sachs is holding off on making Omicron-related changes to its economic forecasts until more is known about the virus, but it speculates that the variant could stilt global economic growth by 2.5 percentage points in the first quarter of next year. Still the bank agrees that the world is better equipped to respond to Omicron than it was for previous variants.

“The upshot is that Omicron could have sizable growth effects, but that the range of medical and therefore economic outcomes remains unusually wide,” Goldman economists said in a note.