New Delhi: The second wave of Covid-19 infections that was triggered by a new variant of SarS-CoV-2 virus known as Delta variant has significantly damaged economic activity across several countries in Asia as the authorities imposed national and local lockdowns to curb the rising cases in April-May this year. The second Covid wave was particularly hard on Asia’s third-largest economy India as it faced an unprecedented surge that touched around 4,00,000 daily new cases in early May and over 4,000 daily deaths before subsiding to around 48,000-50,000 daily new cases and around 1,000 deaths in the last week.
As a result, economic activity was impacted as several provinces in India imposed restrictions on movement of goods and people. In June, India’s manufacturing activity as measured by Purchasing Managers’ Index (PMI) declined from 50.8 in May to 48.1 in June this year, the first decline in 11 months. However, India is not the only country that has experienced decline in economic activity due to new strains of Coronavirus. Most of the major economies in Asia faced the brunt of virus-induced lockdowns.
According to the data compiled by the Oxford Economics, June PMIs showed a broad-based deceleration in activity in Asia as new cases of coronavirus infections weighed on domestic demand and external orders rising at a slower pace. “Barring South Korea and the Philippines, the PMIs of all major Asian economies fell in June. In addition to domestic demand, a slower pace of rise in external orders weighed on output in most economies,” said economists in a report published by Oxford Economics. While aggregate Asia PMI fell from 53.9 in May to 52.1 in June, the decline was broad-based with the northeast Asia PMI dropping from 55.2 to 53.8 as the PMI for ASEAN countries declined from 51.8 to 49.
“PMIs continue to reflect weak domestic conditions in the coronavirus-hit economies. But they also highlight that global shipping delays, semiconductor shortages, and supply chain disruptions are impinging on external orders,” Oxford Economics said in a statement sent to ETV Bharat. It said the latest data showed slowing export momentum in many Asian economies, including China and Singapore that dampens the near-term outlook for manufacturing.
However, according to economists, things will improve in the third quarter onwards as lockdowns will be relaxed and global disruptions will recede.
Malaysia, Vietnam suffer severe economic contraction
Two Asian countries, Malaysia and Vietnam, recorded a large decline in the Purchasing Managers’ Index in the month of June as they battled with the surging cases caused by new variants of Coronavirus. At an individual level, Malaysia suffered the most drastic fall in industrial activity as measured by the Purchasing Managers’ Index. It fell by 11 points, from 50.9 to just 39.9. It was due to a nationwide lockdown imposed by Malaysian authorities since the start of June.
Vietnam, another emerging Asian economy that is expected to get the biggest chunk of foreign investment due to relocation of global corporations outside China, registered a similarly large drop. The Vietnam Manufacturing Purchasing Managers' Index registered a sharp decline, from 53.1 in May to 44.1 in June, the sharpest decline in business conditions for over a year.
India: First PMI decline in 11 months
According to the Purchasing Managers’ Index published by IHS Markit, India’s PMI was in contraction mode for the first time in 11 months due to fresh decline in factory orders and production. The agency said the buying levels suffered one of the fastest falls on record. According to Oxford economists, the drop in India’s PMI from 50.8 in May to 48.1 in June suggests that sentiment remains depressed despite states substantially easing lockdowns in June.
China GDP growth downgraded
Asia’s largest and the world’s second largest economy China was also not immune from the deceleration in the industrial activity in the month of June. Its two purchasing manager indices, the Caixin China PMI, which focuses more on small and medium companies and NBS China Manufacturing PMI registered a marginal decline to come down to 51.3 and 50.9 respectively as domestic and foreign demand was impacted due to fresh outbreaks of the novel coronavirus in some Asian countries.
Oxford Economics also downgraded the growth forecast for China for 2021 from its earlier estimate of 8.9 to 8.4% but predicted improvement in economic recovery in the second half of the year. In India also, most of the experts and rating agencies, including the Reserve Bank of India, have downgraded the economic growth forecast for the current financial year that ends in March 2022.
