"Delta Variant May Further Slow Asia's Economic Recovery"

Lower Vaccination Rates Than Western Countries
WSJ: "Prolonged Lockdowns Increasing Economic Damage"
Global Supply Chain Issues May Worsen
Potential Capital Outflow If Fed Tapers Early

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] An analysis has emerged suggesting that the economic recovery of Asian countries may slow down due to the spread of the Delta variant virus.

On the 2nd (local time), The Wall Street Journal (WSJ) diagnosed, "Unlike Western countries with high vaccination rates, Asian countries, which are setting records for the highest number of confirmed cases due to the Delta variant, are losing the advantage of being 'global production bases.'"

Currently, Western developed countries have a higher average vaccination rate than Asian countries. In the case of the United States, 49.6% of the total population has completed the second dose of the vaccine.

This high vaccination rate has led to the full-scale reopening of the economy, which in turn has boosted economic recovery. Previously, CNBC reported that the United States' Gross Domestic Product (GDP) had recovered to pre-COVID-19 pandemic levels as of the second quarter.

Additionally, market research firm IHS Markit reported that new orders in Europe, where vaccination rates are high, have outpaced industrial production by the largest margin in 24 years.

However, WSJ's analysis points out that the economic impact is greater in Asian countries with low vaccination rates.

Among them, Southeast Asia, which is severely affected, shows that only 8% of the total population in Indonesia and the Philippines have completed vaccination, and only 6% of the total population in Thailand have been vaccinated.

Malaysia ordered the closure of non-essential industry factories in early June, putting companies in non-essential sectors, including the garment industry, on alert.

In Indonesia, garment factories continue to operate, but local businesspeople reported difficulties in securing raw materials due to lockdown measures in neighboring countries such as Vietnam.

[Image source=Reuters Yonhap News]

WSJ also pointed out that export-driven countries like China and South Korea are showing signs of a slowdown in their export engines.

China's manufacturing Purchasing Managers' Index (PMI) in July recorded the lowest levels in over a year. WSJ analyzed this as evidence that domestic and foreign demand is shrinking.

In particular, the new export orders sub-index of China's July PMI was 47.7, the lowest since June last year. When this index falls below 50, it means more exporters reported a decrease in orders.

South Korea, which saw exports increase by 39.8% in June and 29.6% in July, is also expected by WSJ to face similar issues as China in the coming months, including supply chain uncertainties.

Frederick Neumann, co-head of HSBC Asia Economic Research Institute, expressed concern, saying, "The immediate threat of the virus will subside within a few short months, but the economic impact could last much longer."

He analyzed that lockdown measures in Asia, which serve as global production bases, could further worsen the already disrupted international supply chain issues.

Pan Jingyi, deputy head of the economic department at IHS Markit, said that the worsening of these supply chain problems is a "bad sign for global inflation."

Furthermore, WSJ analyzed that the increase in new confirmed cases could complicate the normalization plans of monetary policies by Asian central banks.

Some countries might maintain a more prolonged accommodative monetary policy, but considering that the U.S. Federal Reserve (Fed) plans to announce tapering within this year, the risk of capital outflows from those countries is increasing.

[Image source=EPA Yonhap News]

Ultimately, the best approach for Asian countries is to maximize vaccination rates and end lockdown measures as early as possible.

Stephen Cochrane, an economist at Moody's Analytics, said, "The most important factor for economic recovery is how long governments continue social distancing measures," adding, "There are not many options other than expanding vaccination."

This content was produced with the assistance of AI translation services.