Coronavirus outbreak in Southeast Asia threatens $3 billion recovery

Coronavirus outbreak in Southeast Asia threatens $3 billion recovery

BANGKOK KUALA LUMPUR: Fresh outbreaks of the delta coronavirus variant in Southeast Asia have crippled its factory sector, disrupting global supplies of goods such as rubber gloves, semiconductors and SUVs and threatening the $3 billion recovery in the region.

A series of factory surveys this week showed business activity across most Southeast Asian economies in July, a contrast to strong manufacturing economies in Northeast Asia and the West where business growth has slowed but remained in expansion.

The economic disruptions in Southeast Asia caused by the virus have been made worse by slow progress in vaccinations in the region of 600 million people. Governments have struggled to secure doses and have imposed costly lockdowns that have left many factories without workers.

The setbacks threaten the growth of one of the world's more dynamic emerging market blocs, which has met various global crises in recent decades thanks to broad robust economic reforms and its proximity to China.

HSBC economists warn that the uncertain inoculation rates in Indonesia, Vietnam, the Philippines and Thailand, as well as the low efficacy of their vaccines, puts their economies at risk.

This means that populations in these countries could remain vulnerable not only to the current outbreak, but any future mutations that may develop, HSBC said. Touch and - go restrictions are likely to continue, weighing on the near-term growth outlook.

For Southeast Asia's manufacturers, who are largely competitive because of low-cost labour and access to raw materials, the impact of new outbreaks on labour supply has been a major production bottleneck.

As Asia's fourth largest auto exporter and a production base for major global car brands, Toyota Motor Corp suspended production at three plants in July due to parts shortage caused by the Pandemic.

Siam Agro-Food Industry, a Thai processed fruit exporter, is heavily dependent on migrant labour and has been unable to fill 400 of the 550 roles as workers return to their countries and are unable to return due to closed borders.

There are 350 tonnes of fruit per day, but now we can take only 250 tonnes because there are not enough workers to process, said Ghanyapad Tantipipatpong, president of Siam Agricultural and Food Industry.

There is strong demand from export markets, such as the United States, our main market. In Vietnam, which hosts facilities belonging to global companies such as Samsung, Foxconn and Nike, companies in the country's south have been forced to isolate workers at their production sites at night.

Industrial output in several southern provinces and cities where strict movement restrictions were imposed since July, has declined sharply, the government's statistics office said last week.

In Malaysia, which supplies about 67% of the global rubber glove market, lockdown restrictions forced many glove makers to suspend operations in June and July.

Since then, the imposed restrictions have allowed 60% of the job force to return after the country's glove-making association had pleaded with the government for the industry to resume, citing concerns from global buyers. The association is now calling for full return.

Already, disruptions in Malaysia are causing discord elsewhere with German chipmaker Infineon Technologies expecting to hit in the tens of millions of dollars from shutdowns of its Southeast Asia plant. The slowdown will in turn affect Infineon's automotive clients.

Daniel Bernbeck, CEO of the Malaysian-German Chamber of Commerce and Industry, said the strict quarantine rules in Malaysia make it difficult for higher-end manufacturers such as chipmakers to bring it the technical expertise needed.

Analysts warn that the risks go beyond a hit to production.

Moody's Investors Service said Asian-Pacific economies with weak institutions and concentrated economic structures would be hardest hit.

These are economies with lower social incomes, with deep scarring likely to increase dark risk points, Moody's said. In some of these economies, high debt burdens are limiting governments' fiscal space to withstand the pandemic.