Facing domestic drag, South-east Asia needs vaccines to exit a lockdown limbo

KEY South-east Asian markets are "awaiting a vaccination pivot", DBS economist Radhika Rao said in a report on Thursday, as Covid-19 outbreaks hammer the region.

DBS cut its growth forecast to 5 per cent in 2021, for the Asean-6 economies of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, from 5.2 per cent before.

That's as local lockdowns weigh down the potential recovery in domestic sectors, which Ms Rao noted are generally lagging the year-on-year expansions in external trade.

"Reimposition of restrictions has hurt mobility and confidence indices, discretionary as well as non-discretionary," she wrote, naming groceries and pharmacies as examples.

While vaccine roll-outs offer a way out of infections and lockdowns, Ms Rao observed that much of Asean is trailing the pace of inoculation in leading economies such as the United States, Britain, Germany, France, China and South Korea.

"Singapore leads the roll-out, with more than half having received at least one dose, whilst Vietnam lags the rest. Supply shortage and administrative constraints hamper most (Asean-6 countries)," she wrote.

In particular, economists have sounded warning bells about a worsening epidemic in Vietnam, even though the economy has leapfrogged regional peers.

Vietnam recently notched second-quarter year-on-year growth of 6.6 per cent, lifted by a low base effect as well as manufacturing strength.

But UOB research head Suan Teck Kin also flagged Covid-19 risks to the rosy second-half outlook, in a report published on Thursday.

Above all, "the rapid increases of infections in the country are further compounded by slow pace towards herd immunity via mass vaccination", he said.

Sian Fenner, lead Asia economist at Oxford Economics, added on Tuesday: "Supply constraints could see the government fail to meet its target of reaching herd immunity by early 2022, thereby risking periods of restrictions and a lower GDP (gross domestic product) forecast."

To be sure, the GDP in most of the Asean-6 economies has either returned to pre-pandemic levels or is on track to do so by year-end.

Faiz Nagutha, Asean economist at BofA Global Research, noted at a briefing on Thursday that the two exceptions are the Philippines, as well as Thailand, where "we are a bit bearish on the tourism recovery" despite the reopening of Phuket.

But the rebound will still be dependent on the shape of the Covid-19 pandemic.

Growth forecast upgrades are largely limited to small open economies, such as Hong Kong, Singapore and Taiwan, according to Mr Nagutha.

He said that these markets "have very large export sectors and manufacturing sectors" and are doing a "better job on both controlling Covid, and also on the vaccination front".

One exception is Indonesia, which "never had a big, sharp contraction" and is tipped to post 4.7 per cent growth in 2021 and 5.2 per cent growth in 2022.

Mr Nagutha kept these forecasts untouched, but added that "fresh outbreaks there are definitely a risk".

Indonesia - the region's largest country - this week posted record highs for numbers of new infections, and is reportedly on the verge of a lockdown.