Written by NUR HANANIAZMAN / pic by AFP

The highly contagious Delta variant is challenging policy makers, raising expectations that the economic recovery will gain momentum in late 2021.

Moody’s Analytics Senior APAC Economist Katrinael and Moody’s Analytics Associate Economist Davuchia said a downward revision to their gross domestic product (GDP) forecasts for Indonesia, the Philippines and Malaysia had previously taken place.

“Given that the economic recovery has paused and there is a stronger backlash towards the December quarter, we could cut prices further this quarter.

“Indonesia is at the worst end of the spectrum. At baseline in July, we lowered our GDP forecast from more than 5% to 4.5%, but it will be revised further down as domestic demand is declining due to the national blockade. It’s likely, “said the report’s title,” Macro Roundup: It. ” Yesterday gets worse before it gets better. “

Singapore will be closed until mid-August, but given that exports to the economy are very important, the downside risk to the third quarter is low.

The Philippines has relaxed regulations in the past month, but the arrival of Delta variants is likely to increase daily infections.

Meaning of late vaccination

Asia’s generally slow immunization rates are the thorns of the region’s economic recovery.

Experience in the United States and the United Kingdom has demonstrated that high complete vaccination rates significantly improve the health outcomes of COVID-19 contraction, regardless of variant.

“The average rate of full vaccination against the Asian population is low, so there is a need for blockages and other means of limiting social distance to protect vulnerable people.

“Once the herd’s resilience is reached (about 70% of the population), the need for strict blockades is eliminated, and thus domestic demand is less restrained,” said El and Chia.

Policy implications

Central banks were proactive in responding to pandemics in the first half of 2020, often unleashing unprecedented support to mitigate the blow.

But now, while the economy is still struggling, central banks can no longer support the same financial space. Fiscal policy is responsible for doing heavy labor in Southeast Asia.

El and Chia, for example, said Malaysia could introduce four important fiscal stimulus measures this year and further raise its debt caps due to tight movement restrictions in Kuala Lumpur.

They see Indonesia as having a significantly larger budget deficit than originally planned this year, with further government support to ease travel restrictions in Bali and Java.

“The Philippines may soon introduce an additional US $ 3.6 billion stimulus to keep the government’s downwardly revised GDP target for 2021 at 6% to 7% this year.

“Even if this latest package is announced in the Philippines, we argue that the existing 2021 GDP forecast of 4.9% is at risk of downside,” they added.