Fitch unit: Delta is biggest threat to Asian economies

MANILA, Philippines – This year, the hyper-contagious Delta variant is likely the biggest threat to Asian economies like the Philippines, which is seeing a renewed surge in cases.

In a commentary emailed to reporters on Monday, Fitch Solutions, a unit of the Fitch Group, said emerging Asia’s economy is forecast to grow 7.8% this year, slower than earlier projection of 7.9%.

Broken down, Fitch Solutions said markets like Indonesia, Thailand and the Philippines saw the largest downward revisions this year “amid their significantly worse outbreaks since the onset of the pandemic and relatively low vaccination rates.” Earlier, the Fitch unit slashed its 2021 growth outlook on the Philippines to 4.2% from 5.3% previously, citing “continued disruptions to output from Covid-19 outbreaks.”

“Most Asian economies emerged out of recession and posted strong growth in (second quarter), but the region's recovery has been constrained by low Covid-19 vaccination rates and the emergence of the more transmissible Delta virus variant,” the Fitch unit said.

The Philippines exited recession in the second quarter after gross domestic product grew 11.8% year-on-year during the period, with base effects distorting the data. According to Fitch Solutions, majority of major emerging Asian economies have already recovered to their pre-pandemic levels as of second quarter, except for the Philippines and Thailand.

The Delta variant has compelled the national government to re-impose harsh lockdowns in Metro Manila and nearby areas this month, a likely drag to economic activity in the third quarter. That said, Fitch Solutions is convinced that the Delta variant, which health experts say is emerging to be the dominant version of coronavirus in the Philippines, has derailed hopes for “meaningful” economic recovery this year.

But Fitch Solutions said the most notable downward revision was made to Malaysia, which is forecast to register no growth this year, from the original projection of 4.9% expansion. The Fitch unit said pandemic uncertainties were worsened by an ongoing political crisis in the country that may limit the Malaysian government’s ability to support growth.

Meanwhile, vaccinations, which is key to more easing of restrictions, have yet to gain ground in densely populated Asian nations like Indonesia and the Philippines. Restoring economic activity to normal will be a tall task for these countries, such that Fitch noted that chances to reopen will be “remote”.

Moving forward, Fitch Solutions said China’s recovery will be “a major source of support for the region” since it is now the foremost trading partner for most Asian economies. So far, China’s growth has averaged 13.1% year-on-year in the first half.

 “Much of the recovery across Asia will be contingent on borders reopening; as things stand now, most markets are looking to start reducing travel restrictions from Q222 when many achieve higher vaccination rates,” it added.