Once largely free of COVID-19, Asian economies are now shattered by the delta

The delta variant challenges the part of the world that has been most successful in mitigating the economic impact of COVID-19, the Asian countries that have suffocated it have locked themselves again when the virus returns, and others have recorded the highest death rates in the world.

Just 12 months ago, the rapid containment of COVID-19 in the Asia-Pacific region made them envy the world as the virus ravaged the United States and Europe. Now, from Seoul to Sydney, Bangkok to Beijing, authorities are reimposing restrictions that are undermining growth, as low vaccination rates in many of these places make their populations vulnerable.

So far, consumers pay the most. Australia’s central bank, where two-thirds of the population are confined to their homes after delta slipped through the strict travel quarantine system, estimates spending falls by around 15% during shutdowns.

China imposes travel and internal travel restrictions in the middle of the summer vacation as infections return to places like Wuhan and Beijing, leading to reduced growth forecasts in the world‘s second-largest economy. Delta reaches regions that represent 38% of the national gross domestic product.

Supply chains from Vietnam to Thailand, where epidemics are increasing, have also been halted, factories that make products for Nike Inc. and Adidas AG have closed due to virus restrictions, potentially missing the crucial season. holiday shopping. This raises the possibility that the Asian delta blow will spill over to the whole world, if exports are delayed longer term.

“The current delta wave in Asia could worsen production networks,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings PLC in Hong Kong. “The risk is that the growth scars will persist longer.”

The deteriorating outlook, both for virus containment and economic growth, contrasts with Western economies like the UK, where high vaccination rates are softening the impact of the Delta and travel reopening is progressing.

There is a common theme among many Asia-Pacific economies that have seen early success in limiting the damage from the virus: complacency. With low death tolls, authorities in South Korea, Japan, Australia and New Zealand are among those lagging behind in vaccine deployment; their vaccination rates are now among the bottom 10 among the 38 member states of the OECD.

All except New Zealand have been hit by the delta, with infections over the past month increasing about three times in South Korea, quadrupling in Japan and climbing more than 600% in Australia . The outbreak has worsened in Australia’s largest cities, with cases in Sydney and Melbourne reaching new highs for the current outbreak.

Fragile recovery

Japan’s Olympics – meant to be an economic boon – collapsed as spectators were sidelined amid a new state of emergency imposed on Tokyo and elsewhere. Although there has been no spread of the virus among the world’s mostly vaccinated athletes, the Delta has invaded the local population outside the Olympic Village.

In frustration with the emergency stop-start cycle, the Japanese are paying less attention to calls for caution with foot traffic at stations and many bars and restaurants openly flouting government demands to close early.

Japan recently won the dubious distinction of being one of only two advanced economies to see its growth prospects curtailed by the International Monetary Fund. Asia’s largest retailer, operator Uniqlo Fast Retailing Co., lowered its full-year operating profit outlook in July in part due to COVID-19 restrictions in Japan and others Asian markets.

One dose of the COVID-19 vaccine from Sinovac Biotech Ltd. is administered at a vaccination center in Tanggerang, Banten, Indonesia on July 28. | BLOOMBERG

Across the East China Sea, the delta epidemic in China intensifies economic risks in the second half of the year, after fatal flooding and a slowdown in exports and investment. Social distancing measures will likely weigh on a fragile recovery in retail spending during the peak summer vacation period. Airline seating capacity in China was down 10% from the previous week, and travel booking sites reported an increase in cancellations.

“We have no customers at all because no one is allowed to roam freely,” said a sales manager named Xie who works at a hotel in Zhangjiajie, a tourist destination in Hunan Province. (central China) where the delta caught fire. The 30-room hotel typically earns 2 million yuan ($ 309,000) in monthly sales over the summer vacation, but business has stalled since authorities shut down tourist sites on July 30.

“July and August were supposed to be the busiest months for us. There is nothing we can do but wait and hold on, ”he said.

Visits to Macau, the Chinese territory which is the world’s largest gaming center, are also expected to drop after the first cluster of local cases there in more than a year.

In South Korea – where only 14% of the population has been fully vaccinated – about 30% of its 205,000 cases have occurred in the past two months alone. Worst peak since the start of the pandemic has forced President Moon Jae-in to put Seoul under semi-lockdown, banning gatherings of more than two people after 6 p.m.

Still, the Bank of Korea insists the recovery is still on track. It’s a similar story in Australia, where the central bank is sticking to its plans to cut weekly bond purchases, even though it recognizes that GDP is almost certain to contract this quarter.

This partly reflects monetary policy delays, but it is also the experience of past lockdowns, when economies rebounded quickly.

Still, the delta variant has altered the calculations, and its highly contagious nature may leave a longer impact on places that have weathered previous waves.

Labor shortages

Southeast Asia is now emerging as one of the worst affected regions in the world, recently overtaking Latin America with the highest weekly death rate. At the epicenter is Indonesia, where the death toll this week has surpassed 100,000, although President Joko Widodo is resisting tighter movement restrictions that would further harm the region’s largest economy.

The debate over whether to lockdown is particularly tense in Thailand, as well as neighboring Vietnam, as trade has been one of the few strengths of the economy. The Federation of Thai Industries recently warned that quarantines and mobility restrictions are causing labor shortages, forcing companies to cut production.

Health workers perform screening checks at a COVID-19 vaccination center at the MBK Center shopping mall in Bangkok, Thailand on July 16.  |  BLOOMBERG
Health workers perform screening checks at a COVID-19 vaccination center at the MBK Center shopping mall in Bangkok, Thailand on July 16. | BLOOMBERG

The disruption is being felt by U.S. retailers, who are increasingly concerned that their shelves will not be fully stocked for the peak holiday shopping season. American Apparel & Footwear Association chief executive Steve Lamar called on US President Joe Biden to “immediately increase the distribution of surplus US vaccines to Vietnam and other key partner countries,” including Bangladesh and the United States. ‘Indonesia.

In India, where the delta strain was first identified last year, a deadly second wave that has left millions unemployed and thousands dead has subsided. But the fallout is significant: last month, the IMF lowered its forecast for the year through March 2022 to 9.5%, down from 12.5% ​​three months earlier.

Then there’s Singapore, the thriving city-state in the heart of the Southeast Asia region. It has struggled to make a planned transition from low cases and strict safety protocols to a “new normal” in which COVID-19 is rampant as long as hospitalizations and deaths are limited.

A recent increase in delta infections has forced the government to step back and reimpose restrictions, although it has now pledged to reopen in September, when vaccination among the population reaches a very high level.

“Our calculation of existing vaccine levels, vaccine availability and completion rate shows that Singapore will be the first to reach the 80% threshold,” said Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis. “This means it will be the first to come out in Asia.”

For the rest of the region, getting out of the pandemic remains a distant proposition.

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