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Delta blow knocks wind out of Asia’s economic recovery

TOKYO (Reuters) – Asia’s robust economic recovery from last year’s coronavirus low is losing momentum as a surge in COVID-19 cases sees shops empty again and factories close, dimming prospects for corporate profit growth after a blockbuster half year.

The rapid spread of the highly infectious Delta variant of the novel coronavirus and low vaccination rates have caught much of the region off-guard, especially in emerging markets, even as economies in Europe and North America reopen.

“It’s clear that economies across the region are suffering more from COVID-19 than they previously did. The biggest factor is that Asia is poorly vaccinated,” said Rob Carnell, Asia-Pacific head of research at ING in Singapore.

While year-on-year corporate and economic indicators continue to show strong recovery, flattered by comparisons with 2020’s sharp declines, quarter-on-quarter indicators reveal flagging momentum.

Asia’s biggest firms are likely to post their first quarter-on-quarter profit decline in six quarters in July-September, falling 6.19%, showed a Reuters calculation based on Refinitiv Eikon analyst data of 1,069 companies with market capitalisation of at least $1 billion.

“There’s no mistake there will be a slowdown in the third quarter,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

In the near-term, much depends on vaccination progress in Southeast Asia – a major production base – and whether China takes extra steps to support its economy, Fujito said.

Vehicle sales in China, the world’s second-largest economy, slipped 11.9% in July versus the same month last year, falling for a third consecutive month amid virus outbreaks and a global semiconductor shortage which is curbing output.

Toyota Motor Corp, the world’s largest automaker by sales volume, said last week it would cut September production by 40% from its previous plan due to the chip crunch, though it retained production and sales targets for its fiscal year.

Regarding broader parts supply, Toyota executive Kazunari Kumakura said, “The spread of the coronavirus and lockdowns in Southeast Asia had a major impact.”

SUPPLY HEADACHES

In Southeast Asia, soaring COVID-19 cases and subsequent lockdown measures have hit economic activity in both the services and manufacturing sectors.

Factory activity in the region contracted in July at the fastest pace since June last year, IHS Markit data showed.

“That’s quite a strong signal that economic momentum in Southeast Asia will slow in the third quarter,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit in Singapore.

Delta outbreaks in Southeast Asia have caused supply chain headaches for many of the world’s largest manufacturers, many of which rely on auto parts and semiconductors made in low-cost bases such as Thailand, Vietnam and Malaysia.

Mitsubishi Motors Corp Chief Financial Officer Koji Ikeya said the COVID-19 resurgence will depress demand, the chip shortage would have a lengthy impact on production, and prices of steel and other materials are set to rise.

“Because of those risks, the environment surrounding us remains unstable,” Ikeya said.

BASE EFFECT

In Malaysia and Vietnam, lockdown measures and cases of infection have forced factories to suspend operations.

“Of course, governments are trying to put in place better protection for essential workers … for example, giving them priority for vaccination,” said IHS Markit’s Biswas.

The extent of any economic slowdown in Asia will not be fully known until governments release third-quarter gross domestic product (GDP) estimates later this year.

Asian economies that were moving from a state of relative openness to lockdown will probably see their GDP contract quarter-on-quarter, said ING’s Carnell.

ING has already trimmed its growth forecasts for Thailand, Malaysia, Indonesia, the Philippines and Australia, he said.

“You’re seeing 30-40% (year-on-year) export growth in many cases but you’ve got very strong base effects working through those things,” Carnell said.

PARIS (Reuters) -Lionel Messi said on Wednesday he wanted to power Paris St Germain to their first Champions League trophy, putting the tearful farewell he bade to Barcelona behind him after signing a two-year contract with the deep-pocketed French soccer powerhouse.

Messi joined the star-studded PSG as a free agent after Barcelona, where he begun and always imagined he would play out his career, acknowledged last week they could no longer afford him.

Thousands of PSG fans thronged the side’s Parc des Princes stadium, daring to believe their team would now deliver the Champions League having hoovered up domestic titles since free-spending owners Qatar Sports Investment European arrived in 2011 but always fallen short of European soccer’s top prize.

Messi said he was hungry to add more Champions League titles to the four he won with Barcelona.

“That’s why I am here (to win trophies). It’s an ambitious club,” Messi told a news conference.

After years of failing to get beyond the quarter-finals, PSG finally reached the final in 2020, but lost to Bayern Munich, while last season they went out in the semi-finals.

“My dream is to win another Champions League, and I think this is the ideal place to be to do that,” added Messi, who in a nod to his first squad number in senior football at Barcelona will wear the No. 30 jersey at PSG.

The Argentine conceded he did not know when he would make his debut, having not played since winning the Copa America with his country last month.

“I’m coming back from holiday. I need a bit of a pre-season to get myself going,” he said.

FAIR PLAY RULES

Messi will join former Barca team mate Neymar in Paris.

The Brazilian left Catalonia for the French capital in a world record 222 million euro ($259.94 million) deal in 2017, but never hid his desire to link up with his close friend once again on the pitch.

They will now line up with French Word Cup-winner Kylian Mbappe in a potent front-three attack.

“To play with the likes of Neymar and Mbappe is insane,” Messi continued.

France’s top soccer league has always been perceived as the poorer cousin to top flight leagues in neighbouring England, Germany, Spain and Italy.

PSG’s Qatari money is enabling PSG to compete at their level, though much of the rest of the league is way adrift in terms of resources. In unusual comments praising a club’s transfer dealings, Ligue 1 President Vincent Labrune celebrated Messi’s signing as a big win for French soccer.

“The arrival of Messi will bolster the attractiveness and visibility of our championship across continents,” Labrune said in a statement. He thanked the club’s owners for creating what he called one of sport’s biggest franchises globally.

However, some commentators have asked how PSG could afford to sign Messi within the Financial Fair Play (FFP) regulations of European soccer’s governing body, UEFA.

UEFA’s FFP rules are designed to prevent clubs spending more than they earn. Spain’s La Liga’s own FFP rules are more stringent than UEFA’s, with each club given a salary cap they must adhere to.

“We’re always attentive to Financial Fair Play. It’s the first thing we check with the commercial, financial and legal people before signing someone,” PSG chairman and CEO Nasser Al-Khelaifi told the same news conference.

“MAGICIAN”

Messi held up his new shirt to thousands of fans outside the stadium, waving shyly as they beat drums, released smoke flares and chanted his name.

Local fan Nelson Dross, 17, told Reuters: “Why do I love him? Because he makes us dream. He’s a magician, a genius.”

Messi wept on Sunday as he told Barcelona fans he was leaving his childhood club.

“I’ll always be thankful to Barca and their fans. I went there as a boy, and we had some good and bad times,” he said on Wednesday.

Asked how he would feel if the time came to square up against his old club, he replied: “It would be nice on the one hand to face them in the Champions League, especially with fans, but on the other strange to go back to my home in another team’s shirt – but that’s football.”

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