Covid-19 bruising Asia's recovery: report

THE contagious Delta variant is putting Asia on a back foot in terms of economic recovery.

This year was supposed to be substantially better than 2020 with the hope that the pandemic would be largely under control, vaccine roll-out mostly seamless, and economic recoveries unwavering. Reality is significantly less upbeat.

While 2021 is certainly better than 2020, this week proved that for many economies throughout the Asia-Pacific, Covid-19 management and containment is an ongoing challenge with various degrees of success as the Delta variant sweeps through the region, said Moody's Analytics in a report on Monday.

Indonesia in particular has been hard hit. The country declared its first national lockdown as cases spiked this week with a seven-day daily average sitting just under 30,000. Covid-19 cases in Vietnam are also at their worst and a lockdown in Ho Chi Minh City began this week.

"We expect that Indonesia will be hardest hit, putting our downwardly revised full-year 4.5 per cent forecast for 2021 at risk," said the authors, Katrina Ell, senior Asia-Pacific economist; Dave Chia, associate economist; and Stefan Angrick, economist at Moody's Analytics.

Working against Indonesia is that domestic demand is a relatively large share of the economy compared with others in South-east Asia, so exports aren't as much help in offsetting domestic weakness at the aggregate level.

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Even as the situation is critical for the economy with the health system being overwhelmed by patients and a lack of resources including oxygen, the worst is yet to come for Indonesia's economy, they said.

The government has only recently extended its virus curbs nationwide, being reluctant to do so previously given the hit to domestic demand.

Health authorities forecast that the daily number of coronavirus cases is not expected to reach its peak for a few weeks.

Fiscal support is expected to do the heavy lifting to support Indonesia's suppressed domestic demand. Bank Indonesia (BI) is unable to offer further monetary stimulus given the risk of capital flight amid rising US yields. In addition, BI has made it clear that rupiah stability is a priority.

Even though foreign reserves have increased, BI remains vulnerable to capital flight given around 40 per cent of Indonesian bonds are foreign-owned and the country has persistent current account deficits, stated the report.

Vietnam and Malaysia will also take significant hits, they noted.

Vietnam's GDP (gross domestic product) growth is forecast at 3.6 per cent in 2021, but if the virus is not contained quickly and lockdown orders persist, it will not hit this figure. The government has been aggressively trying to protect its economy. For instance, mandatory sleepovers have been introduced in some factories to avoid Covid-19 infiltration that might cause delays to necessary production and broader supply chains.