Covid appears to be the ‘Achilles heel’ of Southeast Asian economies, according to Jefferies – .

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Covid appears to be the ‘Achilles heel’ of Southeast Asian economies, according to Jefferies – .


SINGAPORE – Failure to contain Covid infections is hampering the recovery of many Southeast Asian economies, says Sean Darby of Jefferies.
“Indonesia, like many ASEAN economies, has yet to fully contain the Covid-19 virus,” Darby, global head of equity strategy at the US investment bank, told Squawk on Tuesday. Box Asia ”from CNBC.

“It seems to be the Achilles heel for the ASEAN economies at the moment,” he said, referring to the regional grouping of the Association of Southeast Asian Nations.

Goldman Sachs recently lowered its 2021 growth forecast for major Southeast Asian economies as an increase in the more infectious delta variant triggered daily records of infections in Indonesia, Malaysia and Thailand in recent years. weeks.

Indonesia’s credit rating under pressure

The surge in infections at the regional level has also called into question the credit ratings of Southeast Asian economies.
Moody’s Investors Service warned on Monday that the resurgence of Covid infections in Indonesia could undermine the country’s credit rating.

“A resurgence of more infectious mutations in the virus poses significant risks to Indonesia’s economic recovery,” Moody’s said in the report. He will also question the government’s plans to reduce the budget deficit to pre-pandemic levels, a negative credit.

Days earlier, S&P Global Ratings issued similar comments, warning in a July 15 report that “Indonesia’s existing credit buffers on ratings will be reduced if ongoing lockdowns are extended.”

Indonesian President Joko Widodo on Tuesday announced an extension of the pandemic-related restrictions which are expected to end on July 25, Reuters reported.

Unfortunately, Indonesia’s potential to reach pre-pandemic levels is likely quite low at the moment given the low rollout of the vaccine.

Darby said Indonesia’s situation needs to be put in context: the country’s balance of payments position is “actually very good,” he said, adding that its foreign exchange reserves were close to record highs. . On top of that, the Indonesian economy is also experiencing “a fairly decent manufacturing recovery”.

Still, he admitted that keeping Covid under control is likely to prevent Indonesia from reaching its full economic potential. The country is lagging behind in its vaccination efforts globally – only 5.95% of Indonesia’s population was fully vaccinated as of July 18, according to Our World in Data.

“The reality is… you probably won’t reach your full economic potential until you achieve some form of collective immunity,” Darby said. “Unfortunately, Indonesia’s potential to reach pre-pandemic levels is probably quite low at the moment given the low rollout of the vaccine. “

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