- Delta variant, slow vaccination catches much of the region by surprise
- Q / q profit in Asia probable 1st drop in 6 quarters in July-September
- Southeast Asian factory activity in July fell fastest since June 2020
TOKYO, Aug.24 (Reuters) – Asia’s strong economic recovery from last year’s low for coronaviruses loses momentum as spike in COVID-19 cases sees stores empty again and factories shut down, reducing prospects for corporate profit growth after a successful six months.
The rapid spread of the highly infectious Delta variant of the novel coronavirus and low vaccination rates have taken much of the region by surprise, especially in emerging markets, even as the economies of Europe and North America reopen.
“It is clear that the economies of the region are suffering more from COVID-19 than before. The most important factor is that Asia is poorly vaccinated,” Rob Carnell, head of Asia-Pacific research at ING told Singapore.
While business and year-over-year economic indicators continue to show a strong recovery, flattered by comparisons with the sharp declines in 2020, quarter-over-quarter indicators reveal momentum in decrease.
Asia’s largest companies are expected to post their first quarterly decline of six quarters in July-September, down 6.19%, a Reuters calculation showed based on data from Refinitiv Eikon analysts of 1,069 companies with a market capitalization of at least $ 1 billion.
“There is no mistake, there will be a slowdown in the third quarter,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
In the short term, it all depends on the progress of vaccination in Southeast Asia – a major production base – and whether China takes additional steps to support its economy, Fujito said.
Vehicle sales in China, the world’s second-largest economy, fell 11.9% in July from the same month last year, falling for a third consecutive month due to virus outbreaks and a global shortage semiconductor which slows down production.
Toyota Motor Corp (7203.T), the world’s largest automaker by sales volume, announced last week that it would cut September production by 40% from its previous plan due to tightening chips, while maintaining its production and sales targets for the year.
Regarding the wider supply of parts, Toyota executive Kazunari Kumakura said, “The spread of the coronavirus and lockdowns in Southeast Asia have had a major impact.”
In Southeast Asia, the surge in COVID-19 cases and the lockdown measures that followed have affected economic activity in the service and manufacturing sectors.
Activity at factories in the region contracted in July at the fastest pace since June of last year, according to data from IHS Markit.
“This is a pretty strong signal that economic momentum in Southeast Asia will slow down in the third quarter,” said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore.
The delta epidemics in Southeast Asia have caused headaches in the supply chain of many of the world’s largest manufacturers, many of whom depend on auto parts and semiconductors made at low-cost bases such than Thailand, Vietnam and Malaysia.
Mitsubishi Motors Corp (7211.T) CFO Koji Ikeya said the resurgence of COVID-19 will lead to lower demand, the chip shortage will have a prolonged impact on production, and prices for the steel and other materials are expected to increase.
“Because of these risks, the environment around us remains unstable,” said Ikeya.
In Malaysia and Vietnam, containment measures and cases of infection have forced factories to suspend operations.
“Of course, governments are trying to put in place better protection for essential workers… for example, by prioritizing them for vaccination,” said Biswas of IHS Markit.
The extent of any economic slowdown in Asia will not be fully understood until governments release third quarter gross domestic product (GDP) estimates later this year.
Asian economies that were moving from a state of relative openness to foreclosure are likely to see their GDP contract quarter over quarter, ING’s Carnell said.
ING has already lowered its growth forecasts for Thailand, Malaysia, Indonesia, the Philippines and Australia, he said.
“You see export growth of 30-40% (year-over-year) in a lot of cases, but you have very strong base effects on those things,” said Carnell.
Reporting by Daniel Leussink and Gaurav Dogra; Additional reporting by Maki Shiraki, Eimi Yamamitsu and Tom Westbrook; Editing by Sam Holmes and Christopher Cushing
Our Standards: Thomson Reuters Trust Principles.