Southeast Asia is becoming a battleground for one of the world’s worst COVID-19 outbreaks due to the rapidly spreading Delta variant and the slow adoption of vaccines.

With a population roughly twice that size Like that of the US, the dynamism of the outbreak in the region has now dwarfed previously hard-hit places like Latin America and India, with cases rising 41% to more than half a million over the past week, according to Bloomberg analysis of data from Johns Hopkins University. The death toll rose 39% in the seven days through Wednesday, the fastest pace in the world, and is likely to continue to rise as a rise in deaths usually follows an increase in cases.

Meanwhile, the overall vaccination rate is down Southeast Asia by 9% behind developed regions like Western Europe and North America – where more than half the population has been vaccinated – and only outperforms Africa and Central Asia.

As large parts of the developed world are reopened to business, the means deteriorating Situation in most parts of Southeast Asia that they are reintroducing growth-inhibiting movement restrictions. Singapore is the exception, where sealed borders and high vaccination rates keep the virus in the region’s only developed economy.

Stocks and currencies across the region have sold out in recent weeks as governments are forced to balance their budget deficits and the central banks are running out of ammunition. This is because the US Federal Reserve has early talks to curb bond purchases, which gives Asian policymakers less leeway to loosen policy further without risking weaker currencies.

“Given the slow pace of vaccination, With the exception of Singapore, we expect the recovery to be bumpy and the risk of further periods of tightened restrictions remaining, ”said Sian Fenner, Senior Asia Economist in Singapore at Oxford Economics Ltd. Rising uncertainty is likely to create further economic scars as well. “

Indonesia, the largest economy in Southeast Asia, overtook India this week in new daily cases and cemented its position as the new Asian virus epicenter, while several of its neighbors also have record numbers

Indonesia, Thailand and the Philippines have already lowered their GDP forecasts for this year, and Malaysia plans to follow suit soon. Vietnam, one of the few economies in the world that has continued to grow strongly over the past year, has the Below forecasts for the first half of 2021 and is now struggling with an outbreak in areas with large industrial parks.

Before the pandemic, according to the World Bank, the largest economies in Southeast Asia would have been the fifth largest in the world, behind Germany.

Southeast Asia was supported by strong global demand for exports, ins especially electronics, as the pandemic has drained traditional driving forces such as consumption and tourism. That external demand could change, however, and promise more pain for the region.

“Now that the advanced economies in the West reopen, their demand momentum is likely to shift from goods to services, meaning that Asian export growth in is likely to wane in the coming months, ”said Tuuli McCully, Asia director in Singapore. Pacific Economics at Scotiabank. “Domestic demand would have to pick up to keep the economic recovery on track, but the worrying virus situation is dampening that outlook.”

Led by Vietnamese stocks, the MSCI Asean Index lost 1.7% this month, extending its decline of 3 , 4% in June. Thailand’s baht, the emerging market currency of Asia this year, has lost about 5% since mid-June, around the time the delta variant hit the country, while the Philippine peso lost 4.2%.

In In a release on Thursday, economists at Goldman Sachs Group Inc. said they would cut second-half growth projections in Southeast Asia by an average of 1.8 percentage points, with the largest cuts for Indonesia, the Philippines, Malaysia and Thailand.

Renewed outbreaks and tighter restrictions will “likely weigh more heavily on GDP growth in the second half of the year than we previously estimated,” said the economists.

The reason is that policy rates across the region are at or near the all-time low and governments have only limited leeway to spend more.

Malaysia, which has already passed four stimulus packages this year, is considering raising the Sch ulden upper limit, since he is running out of fiscal leeway. Indonesia recently indicated that it may not get its budget deficit under control as soon as planned after raising the legal limit last year. The Philippine government, which last week just paid off a 540 billion peso ($ 10.8 billion) loan from the central bank, immediately turned around and looked for another.

The need to increase stimulus spending while For these governments, the lack of revenue means “a more difficult start to fiscal consolidation after high deficits in 2020 and, in many cases, weaker fiscal performance this year than previously expected,” said Andrew Wood, a Singaporean-based analyst for S&P Global Ratings / p> In its latest move to downgrade the Philippines’ credit outlook to negative, Fitch Ratings noted that the pandemic is creating potential “scar effects” that could hold back medium-term growth. S&P issued a similar warning to Indonesia on Thursday saying the COVID-19 surge and extended lockdown would have a material impact on the economy and reduce credit buffers.

Rob Carnell, Head of Asia Pacific research at ING Groep NV in Singapore said poorer Southeast Asian countries that tried to limit lockdowns at the start of the pandemic to reduce the impact on people’s livelihoods are paying a price – especially for that choice their efforts to test, track and isolate positive cases were ineffective. As a result, countries like the Philippines and Indonesia that have opted for partial, rolling lockdowns have been forced to continue in one form or another.

“For the richer countries, it was easier to lock down and pay people, to stay home or be on leave while they worked their way through and the poor tried to weigh restrictions with openness to limit the hit on GDP, “said.” Of course that was a wrong compromise – at best just a short term compromise, ”he said. “We may now begin to see the effects of such a policy.”

(Except for the headline, this story was not edited by NDTV staff and will be published via a syndicated feed.)

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