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Asia’s economic outlook turning gloomy?

Back to normalcy in Asia? (Source: dailin / Shutterstock.com)

New waves of the coronvirus have put Asia under lockdowns again, with many developing countries facing a deeper than expected economic slump. The risk from the recent waves of infection from the variants of the virus coupled with a slower pace of vaccinations has led to the reimposition of movement restrictions. Experts suggest vaccinations as a key trigger for the smooth and permanent transition of Asia’s economic outlook to normalcy. However, vaccination efforts are slow in many regions.

The World Bank has just lowered the forecast for East Asia and the Pacific this year, excluding China, saying growth will be slower and below earlier forecast. The region is expected to grow 4% this year, down from a 4.4% forecast in March.

Also S&P Global has revised the Asia-Pacific growth forecast in its Q3 global outlook released on June 30 slightly lower to 7.1% from 7.3% previously, with India, other Southeast Asian economies and Japan pulling down the region’s growth. The analyst further lowered projections for EM Asia by 0.3% to 8%. Meanwhile, China’s growth expectations were nudged up to 8.3% in 2021 due to accelerating vaccinations.

As per the rating agency, exports have contributed to upward revisions for growth forecasts for some economies in 2021. But as many trading partners reopen and consumers spend more on services, the impulse from exports is expected to wane. However, the agency expects a general improvement in the next few quarters, depending on the pace of the vaccine rollout.

The data snapshot on emerging markets by Fitch Solutions suggested that manufacturing sectors across EMs lost steam in June. Contraction in Purchasing managers’ indices (PMIs), which measure the change in activity from one month to the next, was particularly sharp in Asia. While India, Vietnam, and Malaysia registered marks below the 50 – representing a contraction-, Thailand and the Philippines activity picked up slightly compared to May. However, Thailand remained below 50 as well.

Asia still lacking behind in vaccination push

China, South Korea, Vietnam, Singapore, and Taiwan responded swiftly to control the initial outbreak. However, the vaccination rollout in the first half of the year was slower in most nations due to little vaccine manufacturing in the region. Now, many Asian economies like China, Thailand, Australia, Japan, South Korea, and Vietnam have faced resurgence due to the spread of the delta variant and announced new restrictions.

According to Oxford Economics, the delta variant could risk Asia’s economic outlook especially in economies where vaccination rollouts are significantly less advanced.

As per its July report, APAC economies will eventually vaccinate 70% of the population and thereby become less susceptible to the outbreak. China and Singapore have seen an impressive increase in vaccinations, and Japan, South Korea, Malaysia, and Australia are also speeding up rollouts. The economists from Oxford Economics expect Singapore to reach 70% in August, and Vietnam, Taiwan, and the Philippines to follow by mid-2022.

According to a Bloomberg Analysis, Southeast Asia’s overall Covid-19 vaccination rate of 9% lags developed regions like Western Europe and North America and outpaces only Africa and Central Asia.

As per Puay Yeong Goh, Senior Economist at Neuberger Berman, growth in emerging Asia is likely to remain uneven amid a slow vaccine rollout in 2021, pushing out expectations for a full recovery into 2022. Goh said economies, such as China and Singapore will be able to reopen earlier, while those geared more toward manufacturing exports like Korea and Taiwan, should also continue to outperform.

“We expect Thailand and Malaysia to underperform as they are heavily dependent on tourism and will be unable to fully reopen their borders until late 2022. Likewise, domestic demand-heavy countries including India, Indonesia, and the Philippines will likely lag until they can contain the outbreak and/or accelerate their vaccination programs,” he added.