Covid-19 delays to recovery in major Asean markets could mean larger permanent loss: S&P

CONTINUED Covid-19 disruptions could delay recovery in Indonesia, Malaysia, the Philippines, and Thailand, possibly causing greater permanent economic losses, S&P Global Ratings said in its Feb 22 report, Delay Risk On The Rise For South-east Asia's Recovery.

Coming into 2021, activity in these four markets was between 2 per cent and 8 per cent lower than pre-pandemic levels, in terms of real seasonally adjusted gross domestic product (GDP).

S&P Global Ratings economist Vishrut Rana said the baseline estimate was still that these markets will return to pre-pandemic GDP levels around this August, but noted that delay risks are rising.

Governments have restricted mobility and consumers are staying home more amid the continued pandemic, with mobility having stalled and fallen through late 2020 and into early 2021, "most dramatically in Malaysia", which could hurt first-quarter performance, said S&P.

"In our view, the biggest threat to timely economic recovery is individual consumer behaviour, as people stay home more and spend less," it added, noting that household consumption accounts for almost 60 per cent of GDP in Indonesia and Malaysia.

S&P said that a two-month delay in recovery could cut its full-year 2021 growth forecast for these four markets by about one percentage point, to 5.2 per cent.

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About two-thirds of this difference would likely come from weaker-than-expected activity in the first quarter, with carry-over effects into the second half.

A delayed recovery would also have longer-term effects, as more businesses close and more workers lose jobs, skills, and motivation, inhibiting the eventual level of activity when the economy reaches a new normal.

S&P estimates this permanent loss - the gap between the achievable new normal and the pre-Covid trend - at about 7.4 per cent for these economies, rising to 8.1per cent if recovery is delayed by two months.

It expects the Philippines and Thailand to see the largest permanent losses of about 12 per cent and 10 per cent respectively.

"The Philippines suffered from a deep contraction in 2020 amid exceptionally tight mobility restrictions. For Thailand, the issue is structural and related to the tourism sector which we expect to be one of the last industries to recover from the pandemic," said the report.

Growing Covid-19 delay risks notwithstanding, some other risks are tilting to the upside, said S&P. External demand may boost growth more than expected, especially if the United States increases its stimulus, while China's recovery may also come faster than expected.

S&P's assessments are made under the current assumptions that widespread immunisation "looks to be achievable by most developed economies by the end of the third quarter", though some emerging markets may only be able to achieve this by year-end or later.

For South-east Asia, their assumption is that "a broad vaccine rollout" will be in place by the second half of 2021. Emerging economies in the region have secured enough vaccine doses for 40 per cent to 50 per cent of their populations on average, "although efficacy of the vaccines and timing of distribution remain unclear", said the report.