INSIGHT: SE Asia economic recovery at risk from Delta virus variant

Author: Nurluqman Suratman

2021/07/13

SINGAPORE (ICIS)--Rising coronavirus caseloads from the Delta variant and slow vaccination rollouts in key southeast Asian economies may derail their recovery as governments impose fresh restrictions to stem further outbreaks.

While petrochemicals production across the region has not been heavily weighed by restrictions, downstream demand in domestic markets has been badly hit by the resurgence of COVID-19 cases.

The more transmissible variant is now responsible for most new coronavirus cases reported in Indonesia. Malaysia, Thailand, and Vietnam have also reported a surge in Delta cases over the past month.

The World Health Organization’s director-general Tedros Adhanom Ghebreyesus on Monday said the Delta variant is "ripping around the world at a scorching pace, driving a new spike" in cases and deaths.

"[We are] In the midst of a growing two-track pandemic where the haves and have-nots within and between countries are increasingly divergent in places with high vaccination coverage," he added.

Vaccination rates across southeast Asia remain low, with around 5% of Indonesia's 270 million population fully inoculated, about 3% of people in the Philippines, and 5% in Thailand.

The WHO’s chief scientist Soumya Swaminathan said that people who are fully vaccinated against COVID-19 are still getting infected with the Delta variant, but the shots have protected most people from getting severely sick or dying.

“While a rapid vaccine rollout in developed markets is allowing consumers to return to their normal activities, the COVID-19 situation in many emerging markets is deteriorating as the Delta variant spreads,” Fitch Solutions Country Risk & Industry Research said in a note on Tuesday.

Bank Indonesia (BI) Governor Perry Warjiyo on Monday said that Indonesia’s economy could grow by 3.8% in 2021, from the current forecast range of between 4.1% and 5.1%, due to emergency movement restrictions imposed. Southeast Asia’s largest economy fell by 2.1% in 2020.

Emergency restrictions were imposed for the main island of Java and Bali on 3-20 July to curb the surge in COVID-19 cases that has overwhelmed the nation’s healthcare system.

Over the past week, Indonesia has recorded more than 240,000 COVID-19 cases and almost 6,000 deaths – the highest in southeast Asia.

The Indonesian Health Ministry earlier this week reported 40,427 cases on Monday, the highest since the pandemic began. Indonesia has reported more than 2.5m cases overall, around 9% of the total population.

Indonesia’s growth outlook has been revised to 4.4% in 2021, from a previous 5.1% estimate, in view of the latest COVID-19 outbreak and the negative impact it may have on domestic demand, according to Fitch Solutions.

“Given Indonesia’s slow vaccine rollout, we expect that the recovery will remain vulnerable to COVID-19 shocks over the remainder of 2021,” it said.

Malaysia’s Finance Minister Tengku Zafrul Abdul Aziz on Monday cited downside risks to Malaysia’s official economic growth of 6.0%-7.5%, and possibly downgrading it to 4.0% in view of the resurgence of COVID-19 cases in the country.

Malaysia – a major producer and exporter of petrochemicals and palm oil – reported 11,079 new coronavirus cases on Tuesday, the first time the country has reported a five-figure caseload.

Southeast Asia’s second largest economy entered its third lockdown on 1 June after reporting more than 9,000 cases for the first time on 29 May. On 27 June, Malaysia announced an extension lockdown from 29 June 2021 until further notice.

The Malaysian government’s decision to allow 18 manufacturing sectors to operate mainly at 60% of capacity has not lowered virus outbreaks at factories and workers’ dormitories, with most new clusters identified linked to the industrial sector.

Malaysia expects to receive 16m doses of vaccine supplies by July and expects to reach at least a 30% vaccination rate by the end of August.

The government's target stands at 60% of population fully vaccinated with two doses by end-October, before moving to phase 4 of the National Recovery Plan that will enable full reopening of all economic and social sectors.

The government targets for 26m people to be fully vaccinated, to potentially meet herd immunity, by year-end.

The Bank of Thailand (BOT) on Monday said that it may revise its growth outlook this year, as it faces significant downside risks from the mutated COVID-19 strains, and GDP may underperform BOT’s full-year growth outlook of 1.8% for the year ahead.

BOT’s deputy governor Mathee Supapongse also cited that the central bank will monitor the situation and evaluate possible additional policies to support the economy.

Thailand reported a record high of 9,418 community infections on 10 July, a day after authorities reported a record of 91 COVID-19 deaths.

Vietnam on 12 July imposed movement restrictions for two weeks in the Mekong Delta city of Can Tho almost a week after imposing major movement restrictions in major cities, including the capital Hanoi and economic hub Ho Chi Minh.

Vietnam’s health ministry reported 1,953 new infections on 10 July, the seventh straight day of more than 1,000 cases, with most cases recorded in Ho Chi Minh, which entered a two-week lockdown on 9 July.

Vietnam’s economy expanded by 6.61% year on year in the second quarter, supported by robust exports and industrial production.

However, the General Statistics Office (GSO) warned on 29 June that the recent COVID-19 outbreak is posing a threat to the country’s economic recovery.

“Looking past the jump in year-on-year growth due to a weak base for comparison, GDP data suggest that Vietnam is facing a heavy economic toll from its efforts to control the virus,” said Gareth Leather, senior Asia economist at Capital Economics.

“With sporadic outbreaks continuing, the economy is likely to suffer further in the months ahead,” he added.

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.

Insight article by Nurluqman Suratman