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COVID surge puts brakes on Thai and Malaysia growth: survey

Virus variants and US rate hike loom over ASEAN economies

Shipping containers await transport from a port in Bangkok, Thailand in March 2016.   © Reuters

TOKYO -- Economists are predicting a slowdown in the growth of Asian economies, including Thailand, Malaysia and India, as a surge in COVID-19 cases and contagious variants hinder recovery.

Thailand's economy is expected to show a meek 1.9% recovery in 2021 -- the lowest rate among major countries in Southeast Asia -- according to a survey conducted by the Japan Center for Economic Research and Nikkei in June. The quarterly consensus gathers outlooks from economists and analysts in India and the five largest economies of the Association of Southeast Asian Nations -- Indonesia, Malaysia, the Philippines, Singapore and Thailand.

Compared to 2020, a positive turnaround in economic growth is anticipated for all six nations surveyed, which saw their gross domestic product shrinking last year as the outbreak of the coronavirus ravaged the global economy. However, many economists believe a resurgence in COVID-19 infections will curb economic growth in certain countries this year.

The forecast for Thailand's 2021 economic growth stands at 1.9%, a 0.7 percentage point decline from the previous survey in March and the lowest rate among the six surveyed countries.

The major reason for the downgrade lies in the kingdom's struggle to contain its third wave of COVID-19 infections. Thailand has faced a serious shortage of hospital beds, and despite months of successful containment, new daily infections now range from between 4,000 and 6,000.

Lalita Thienprasiddhi at Bangkok-based Kasikorn Research Center says that Thailand's economy faces uncertainty amid surging infections. "Due to the new outbreak, foreign tourist arrivals could be around 0.25 million to 1.2 million this year," she said.

The tourism industry is crucial for Thailand's economy, comprising in 2019 about 20% of gross domestic product thanks to 39.9 million foreign tourists.

In a bid to salvage its economy, Thailand launched its "sandbox" program last week -- a quarantine-free tourism experiment that has opened the island of Phuket to vaccinated foreign tourists. The government aims to use the campaign as a model to revive its tourism sector, but concerns remain over the risks of further COVID outbreaks.

Malaysia is another country battling a brutal third wave of infections. The JCER survey showed a 1.2 percentage point downward revision to its growth rate, which came to 4.1%. The country had the sharpest downgrade in the growth forecast among the five ASEAN nations.

As infections continued to soar, the government of Malaysia introduced a nationwide lockdown in June. The measure has since been extended with tighter restrictions on the movement of people and businesses, including in the nation's capital Kuala Lumpur.

"We believe the services sector, and specifically the retail industry, will remain pressured in the near term as consumer activities could be [hindered] by tightened mobility restrictions and closure of nonessential stores," said Wan Suhaimie, head of economic research at Kenanga Investment Bank.

At the end of last month, Prime Minister Muhyiddin Yassin announced a $36 billion COVID aid package to help support the economy.

Meanwhile, India's growth forecast suffered the biggest drop compared to the previous survey, with economists now expecting a growth rate of 9.7%, down 1.5 percentage points from March.

The severe downgrade was prompted by the country's massive COVID crisis. Infections began to spiral out of control in April and at one point India recorded a daily death toll of over 6,000 -- the highest among Asian countries -- as the delta variant wreaked havoc on its health care system.

Dharmakirti Joshi, the Chief Economist of India-based rating agency CRISIL, notes that "The second COVID-19 wave disrupted India's economic recovery as the huge surge in cases forced states to lock down, and this hit consumer and business confidence."

"The pace of economic recovery will also be a function of the pace of vaccination in the coming months," he added. "We expect 70% of India's adult population to get vaccinated by December in our base case, [after] which recovery can strengthen."

Tirthankar Patnaik, chief economist at the National Stock Exchange of India, said that "Rural demand, which was relatively resilient last year, may get hit this time given the much-adverse impact of the second wave on the rural sector."

The survey also showed that economists project a 2021 growth rate of 4.3% for the Philippines, down 0.9 percentage points from the previous consensus, and 4.1% for Indonesia, up 0.2 percentage points.

Singapore's growth forecast looks the most optimistic at 6.9%, an upward revision of 0.8 percentage points from the March survey, as a rebound in the demand for goods increases exports. Daily COVID infections have also remained fairly low while inoculations speed up. More than half the country's population has received at least one jab of the vaccine as of the end of June.

"The growth outlook is continuing to improve on the back of signs that the effects of restrictions on economic activity are becoming more predictable," said Randolph Tan at Singapore University of Social Sciences." The fact that the manufacturing sector has continued to benefit from strong global electronics demand is a key positive contributor to positive growth sentiment," he added.

Many economists agree that the spread of COVID and the contagious delta variant remain the highest risk factor for Asian countries.

Vincent Loo of Malaysia's KAF Research points out that "Vaccination seems to be the only way to get the country back to normalcy." However, he notes that "vaccination is no 'cure all' as mutated virus variants can bring down vaccine efficacy."

Economists are also watching out for the impacts of U.S. inflation and changes in monetary policy. The U.S. Federal Reserve has signaled that it expects to make its first post-pandemic interest rate hike in 2023. Higher interest rates in the U.S. tend to cause capital outflows from Asian emerging markets and prompt local currencies to depreciate.

In the survey, economists in Indonesia, Malaysia, the Philippines and India cited "U.S. monetary policy" as one of the important risks facing the countries' economies in the next 12 months.

Jakarta-based Bank Mandiri's Dendi Ramdani said that "the possibility of tapering and [a Fed rate hike] will create external pressure to the rupiah exchange rate due to capital outflow and the policy rate in Indonesia. The higher interest rate may restrict economic recovery."

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