A surge in Covid-19 infections in Asian countries has forced imposition of restrictions again resulting in shops going empty again and factories being forced to close down temporarily which has resulted in loss of momentum in the robust economic recovery of the region from the pandemic hit.
That has also dimmed the prospect of growth in corporate profits for the rest of the year after a bumper first half.
Much of the region has been effectively caught off-guard by the quick spread of the highly contagious Delta variant of the coronavirus and the low rates of vaccination in many parts of the region – particularly in the emerging markets, while economies in Europe and North America continued to reopen.
“It’s clear that economies across the region are suffering more from COVID-19 than they previously did. The biggest factor is that Asia is poorly vaccinated,” said Rob Carnell, Asia-Pacific head of research at ING in Singapore.
Quarter on quarter corporate and economic indicators reveal flagging momentum even though year on year numbers continue to showcase strong growth in the region but are heavily skewed by the low numbers of 2020.
According to data Refinitiv Eikon analysts of 1,069 companies with market capitalisation of at least $1 billion, it is likely that their first quarter on quarter decline in profits in six quarter are to be reported for the July-September quarter by some of Asia’s biggest firms.
“There’s 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.
Fujito said the speed of vaccination progress in Southeast Asia – a major production base, and whether extra measures are taken up by china to support its economy will decide the fate of the region’s growth in the near-term.
There was a 11.9 per cent year on year decline in sale of vehicle sales in China, the second largest economy of the world, in July, marking the third consecutive month of such a decline and in the backdrop of new Cvoid-19 outbreaks and a global shortage of chips curbing output.
A 40 per cent cut in its global production targets for the month of September was announced last week by Japan’s Toyota Motor Corp, the largest automaker of the world by sales volume, compared to its previous target because of the chip shortage, the company has however maintained its annual production target.
“The spread of the coronavirus and lockdowns in Southeast Asia had a major impact,” Toyota executive Kazunari Kumakura said in relation to the broader parts supply.
Economic activity in both the services and manufacturing sectors in Southeast Asia have been hit by increasing fresh Covid-19 infections and consequent lockdowns. There was a contraction in factory activity in the region in July and its pace was the strongest since June last year, according to data from IHS Markit.
“That’s quite a strong signal that economic momentum in Southeast Asia will slow in the third quarter,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit in Singapore.
(Adapted form FXStreet.com)