Any hope of fast economic bounce back is dashed by the emergence of the Delta Variant (DV) that forced ASEAN economies, from Indonesia to Malaysia, the Philippines, Singapore and Thailand, to dust off the old playbook of mobility restrictions to fight the surge of the virus given their low vaccination rate. Even the “Zero Covid” strategy that proved successful for Vietnam in 2020 is no longer adequate with the more contagious DV that emerged in India. Beyond the unsustainable loss of tourism on having restrictive borders, which applies to most of ASEAN economies as tourism share of GDP is higher, especially for Thailand, the decline of domestic mobility is tougher in 2021 to stomach since the room as well as the appetite for more fiscal and monetary support is narrower.

Already, economic activity indicators weakened significantly in June and likely to deteriorate further in July and August as mobility declined significantly for Thailand, Australia, Indonesia, and Vietnam. The shock of renewed restrictions has reverberated in equities and FX markets as expectations of growth sag, creating divergence not only with the US but also within Asia. The question is whether this suppression of mobility will last longer. As the example of the US and Europe shows, meaningful normalization of domestic activity is only possible with enough of the population vaccinated. If so, will the ASEAN economies continue to lag in vaccination? To do so, we calculated who in Asia will still be behind using the acquisition of vaccines, run rate and ambition to accelerate inoculation pace.

Our calculation of existing level of vaccine, vaccine availability and run rate show that Singapore will be the first to reach the threshold of 80% first in September – with the existing vaccination ratio, the run-rate and ambition that allow it to normalize domestic mobility (and international too, albeit more gradually). This means that it will be the first to exit in Asia out of the current suppression. While slightly behind Japan now, Malaysia’s faster run rate means that it will be the next to be able to normalize, based on our calculation.

Meanwhile, Thailand, Indonesia, the Philippines, and Vietnam are behind in both acquisition and run rate. Both these hurdles mean that they will stay behind Singapore and Malaysia as well as others in Asia and developed markets in normalizing domestic activities. Within this group of laggards, Vietnam is clearly the most behind while Thailand most advanced in vaccination effort. At the same time, monetary and fiscal are more limited for Indonesia, the Philippines and Vietnam.

As such, downside risks to Vietnam growth rise most substantially in 2021, followed by Indonesia and the Philippines. Economies that can normalize faster will likely do better. Divergence within Asia and ASEAN is likely to remain wide, until the laggard economies turn things around and accelerate acquisition of vaccines and the run rate.

Source: Natixis Global Markets Research