TOKYO • Asia’s strong economic recovery from last year’s coronavirus trough loses momentum as an increase in Covid-19 cases sees stores empty again and factories close, reducing outlook for corporate earnings growth after a successful semester.
The rapid spread of the highly infectious Delta variant and low vaccination rates have taken much of the region by surprise, especially in emerging markets, even as the economies of Europe and North America reopen.
Mr Rob Carnell, Head of Asia-Pacific Research at ING Singapore, said: “It is clear that the economies in the region are suffering more from Covid-19 than before.
“The most important factor is that Asia is poorly vaccinated.”
While year-over-year economic and corporate indicators continue to show a strong recovery, flattered by comparisons with the sharp declines of last year, quarterly indicators show slowing momentum.
Asia’s largest companies are expected to post their first quarterly decline in six-quarter earnings in the period from last month to next month, down 6.19%, according to calculations based on data from analysts at Refinitiv Eikon for 1,069 companies with a market capitalization of at least US $ 1 billion (S $ 1.36 billion).
“There is no mistake, there will be a slowdown in the third quarter,” said Mr. Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
In the short term, it all depends on the progress of vaccination in Southeast Asia – a major production base – and whether China takes additional steps to support its economy, Fujito said.
Vehicle sales in China, the world’s second-largest economy, fell 11.9% last month from the same month last year, dropping for a third consecutive month due to virus outbreaks and a global shortage semiconductors, which slows down production.
Toyota Motor, the world’s largest automaker by sales volume, announced last week that it would cut next month’s production by 40% from its previous plan due to the chip tightening, though it maintained its production and sales targets for its fiscal year.
Activity at factories in the region contracted last month at the fastest pace since June of last year, according to data from IHS Markit.
“This is a pretty strong signal that economic momentum in Southeast Asia will slow down in the third quarter,” said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore.
The delta variant outbreaks in Southeast Asia have caused supply chain problems for some of the world’s largest manufacturers, many of whom rely on auto parts and semiconductors made in low-cost bases such as the Thailand, Vietnam and Malaysia.
Mitsubishi Motors CFO Koji Ikeya said the resurgence of Covid-19 will lead to lower demand, the chip shortage will have a prolonged impact on production, and prices for steel and others. materials are expected to increase.
In Malaysia and Vietnam, containment measures and cases of infection have forced factories to suspend operations.
“Of course, governments are trying to put in place better protection for essential workers … for example, by prioritizing them for vaccination,” Biswas said.
Asian economies moving from a state of relative openness to foreclosure are likely to see their gross domestic product contract quarter over quarter, Carnell said.