The virus prolongs its economic damage

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As President Biden takes office, he highlighted the heavy Covid-19 death toll – now exceeding 400,000 – and the other damage done by the pandemic in the USA.

The winter in the Northern hemisphere has not been kind, with a major surge in infections on both sides of the Atlantic. There have now been 96 million cases and more than two million deaths worldwide, according to the official global figures. The US, with 74,000 cases per million people has been one of the worst affected. The UK, at 50,341, is in 25th place in the table. Death rates have been led by Belgium, followed by Italy amongst the larger countries, with the USA below the UK on deaths per million.

Most advanced countries have experienced a second surge in cases this winter, and most have entered renewed lockdowns following a summer lull and partial relaxation. Some countries have stayed locked-up for longer, others have reacted to rising case numbers by locking up. Most have still ended up with more cases and more deaths whichever route they adopted.

Asia is a Covid bright spot

Some Asian countries have in contrast fared much better. Taiwan used its island position and its willingness to close its ports of entry early to good effect – and has got through so far with very little disease or death. China clamped down heavily after the first outbreak in Wuhan and seems to have avoided a major resurgence. It is also possible that diet, previous contact with similar viruses and other matters affecting the immune systems may have helped keep the disease under control in the countries doing better.

The global figures are the best we have available but may be affected by different ways of collecting and defining the data. There are for example differences over what constitutes a Covid-19 death, given that many of the people who have died are very elderly with other health conditions. There are variable levels of testing for the disease, so the USA and UK with high rates of testing may, in part, be finding more of it. Some countries’ own figures vary over time, as testing proficiency built up and awareness of the disease increased.

The economic impact is more obvious and more easily counted. The main advanced countries experienced the largest post-war recession last year, and most of them are once again facing downturns in service sector activity given the toughened restrictions being placed on travel, hospitality, non-food retail, education and other face to face services.

Markets now need to discount a longer period of restricted activity and monitor the progress being made with vaccination. This is becoming the preferred and only way out for most governments, which think they need to vaccinate all elderly and vulnerable people before allowing a substantial relaxation of controls.

Wealth vs vaccination

So far, 41.38 million people worldwide have received at least one jab out of a two-jab system. This will give them a reasonable amount of protection even before they get the booster. Of these people, 12.28m are in the US, 10 million in China, 4.5 million in the UK and 2.6 million in Israel.

The Europeans have been slow to get started with delays in giving regulatory approval. They still have not approved the Astra Zeneca/Oxford version – which is the cheapest and easiest of the western ones to roll out at scale.

The current position shows Israel having vaccinated 30% of the population, the UAE 20%, Bahrain more than 8% and the UK 6.65%. The world is at 0.53% – with much of Europe at less than 1%. There is a general feeling in markets that the major economies of North America and Europe will have vaccinated enough people by the middle of 2021 to be able to relax many controls and permit a substantial economic recovery.

The large savings balances of many people who have kept their full incomes but have had strict limits placed on what they can buy is likely to induce substantial recovery spending on leisure, travel and hospitality as soon as it is permitted.

There has been some progress with treatments. Dexamethasone lowered the death rate and duration of the serious version of the illness in trials and is widely used. Tocilizumab is now being used in the UK following an encouraging trial. The US has worked on Regeneron and plasma treatments. Continuing to bear down on death rates would be helpful, given the inability to vaccinate the world quickly.

There is going to be more of a row over access to vaccines. The World Health Organisation is highlighting the way advanced countries have ordered far more of it and been willing to pay higher prices to secure supplies for their own population.

Within the EU, Germany has been criticised for making some of its own arrangements for supply instead of relying on EU common purchasing. Whilst there will doubtless be meetings to discuss, the most likely outcome is more financial and health assistance to lower-income countries from the advanced nations, without those governments wishing to divert hard-won vaccine units from their own people to elsewhere. The map of where people have been vaccinated looks like a map of income levels.

The world authorities continue to offer fiscal easing and monetary support to sustain markets, as we live through a longer period of damage to economies, thanks to lockdowns.

View Article – published by Charles Stanley on 20th January 2021