South-east Asia to lose ground to Latin America in 2021 on virus restrictions: report

LATIN America will overtake Asean for growth in 2021, as pandemic-related economic shutdowns reverse historical outperformance in South-east Asia.

That's even though structural trends are expected to restore emerging Asia's lead post-pandemic, according to Moody's Analytics economist Jesse Rogers.

"While the emerging economies of South-east Asia have outperformed their counterparts in Latin America for most of the past two decades, their lead will slide in the next few quarters," he wrote in a note on Tuesday.

Moody's Analytics cited the stricter measures that South-east Asia adopted in response to the viral Delta variant surge, which "will prevent the region from retaking its traditional lead over Latin America and other emerging regions" for the rest of 2021.

"Thinner social safety nets and a younger banking system have prevented South-east Asian governments from offering similar relief to consumers in the form of cash transfers and voluntary draws from pension funds," Mr Rogers also noted, in contrast with the pension drawdowns and other cash injections seen in Latin America.

While DBS economist Chua Han Teng and analyst Daisy Sharma believe that the policy environment should stay supportive, they also pointed to uneven growth in the Asean-6 economies, "with lingering strength in export-oriented manufacturing and weakness in domestic-driven services".

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Retail and recreation mobility remains well below pre-pandemic levels, with Vietnam and Malaysia the worst hit, they observed in a report on Wednesday.

"Retail sales benefited temporarily from favourable base effects earlier in 2021. They are, however, contracting again in Indonesia, Malaysia, and Vietnam amid mobility curbs and weak labour conditions."

As such, real gross domestic product (GDP) in the region is below pre-pandemic levels - with the exception of Vietnam - as the services sector "has suffered from the start-and-stop lockdowns".

"We have already lowered the 2021 GDP forecasts of the Philippines and Thailand recently. Vietnam's outlook is subject to considerable downside risks," the DBS analysts wrote.

Latin America's outsized growth is not expected to last, as Moody's Analytics notes that South-east Asia's economy will be buoyed by its role in the global electronics industry.

"Growth in manufacturing - owing in large part to spillover from China - will boost South-east Asia, driving long-run productivity gains and increasing its importance in the global economy," the report added.

On the other hand, Latin America is projected to see growth capped by its economic dependence on production of commodities such as copper, iron ore and base metals.

Even so, pandemic-related risks remain in play in both regions, Mr Rogers warned. These include fresh Delta-fuelled outbreaks in Latin America, as well as "growing discontent with job losses and officials' handling of the pandemic", which could lead to political instability and delayed investments in South-east Asia, derailing the recovery.