Saturday, September 18, 2021

Rampaging Delta variant leaves Southeast Asian nations with little economic policy room

Reopening at home, whenever it comes, will not be able to restore economic normality.

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Last year many Southeast Asian countries were praised for preventing large outbreaks of Covid-19, even as they recorded sharp declines in output.

They are not escaping unscathed this year. While widespread vaccination may limit the spread and the severity of the Delta variant in many wealthier nations, the majority of Southeast Asians are still wondering when they’ll get their jab.

Indonesia, Malaysia, Myanmar and Thailand are reporting more Covid-19 cases than ever. New daily infections in Vietnam are three times higher than the total for 2020.

High-frequency indicators suggest that the surge in cases is knocking economic activity, according to the Economist.

Daily mobility figures from Google suggest that people in Indonesia and Vietnam are spending more time at home than they did during the outbreaks last summer.

The most reliable indicator of the scale of the economic impact may come from Malaysia, which was hit by a fresh outbreak a little earlier than its neighbours.

In Kuala Lumpur, the manufacturing purchasing-managers’ index, a gauge of activity in the sector, fell to 39.9 in June, the lowest since April 2020. (A figure below 50 indicates contraction.)

On July 20 the Asian Development Bank (ADB) pared back its growth forecasts for Southeast Asia. It now expects an expansion of 4% this year, compared with an earlier forecast of 4.4%.

That may not sound so bad, given the scale of the public-health catastrophe but it means that the region is no longer expected to return to its pre-pandemic level of output by the end of 2021.

Some countries, moreover, will suffer much more than others. And they have fewer tools available to soften the blow.

Vietnam has perhaps been luckiest. The country’s goods trade runs to 201% of its GDP, third-highest in the world after the free-trading ports of Hong Kong and Singapore.

Burgeoning demand for consumer products from locked-down Westerners helped Hanoi to one of the fastest recoveries in the world, and made the country one of the few economies to expand in 2020. Though the ADB has trimmed its 2021 growth forecast for Vietnam, it is still among the highest in the region, at 5.8%.

By contrast, Thailand is suffering without tourists, whose usual spending accounts for around a fifth of the country’s GDP.

The economy shrank by more than 6% last year, and the ADB expects growth of only 2% this year. Faced with this dire economic picture, Phuket has reopened to some vaccinated foreign tourists, a move that Prayut Chan-o-cha, the Thai prime minister, described bluntly last month as a “calculated risk”.

The decision by Indonesia’s government to ease lockdown restrictions from July 26, while cases are still the worst in the region, likewise illustrates the difficult choices many middle-income countries face.

The recent outbreaks have also dashed any remaining hope of the resumption of tourists arriving from China.

Chinese visitors made up between a quarter and a third of tourists in Cambodia, Myanmar, Thailand and Vietnam before the pandemic. Beijing’s reluctance to open its borders, which could persist well into next year or beyond, adds to the economic squeeze.

Yet reopening at home alone cannot restore Southeast Asian economic normality.

The combination of more Delta and less policy space will make the climb back to any kind of “normal” far more arduous than it looked even a few months ago.

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