Delta Variant Stalls Asia’s Economic Recovery After Early Rebound

Asia is emerging as a weak link in an otherwise strong global economic recovery, as new pandemic restrictions restrain manufacturing in some countries and the exports that have powered the recovery in China show signs of slowing.

With progress on vaccinations slower than in the West, Asia is hitting new pandemic highs driven by the Delta variant of the coronavirus. The spread of the virus is threatening to hurt consumer confidence and erode the advantage of many Asian economies as manufacturing powerhouses.

Countries in Southeast Asia have been among the hardest hit, prompting new social distancing restrictions and lockdowns in countries that had largely avoided those measures earlier in the pandemic. Factory production in seven Southeast Asian nations contracted at the fastest pace since May last year. Among the worst hit, according to IHS Markit , were Indonesia and Malaysia, which have recently faced surging caseloads and Covid-19 deaths.

Foreign demand has propelled export economies such as China and South Korea during the pandemic, with factories churning out consumer goods from bikes to furniture and electronic gadgets for overseas consumers. But that engine is showing signs of slowing. In China, both private and official manufacturing Purchasing Managers’ Indexes fell to their lowest levels in over a year in July, suggesting that domestic and overseas demand were cooling off.

In the West, higher vaccination levels are allowing economic activity to return to normal levels. In the U.S., which has vaccinated 49.6% of its population, economic output rose above its pre-pandemic level in the second quarter.