The start of the pandemic pushed global economies into a recession. In just the last two weeks of March, a total of 10 million applications for unemployment benefits were marked in the US alone. The IMF predicted a decline in GDP by 6% this year, and in other parts of the globe, economies have been hit even harder. Among the major economies, the UK suffered most. With its 20.4% contraction towering over the 9.8% drop for the rest of the OECD nations, it is no wonder that news of an effective vaccine by Pfizer and BioNTech has resulted in a surge in market optimism in the UK and abroad, resulting in a climb in the ten-year Treasury yield to 1%, unmatched since March of last year.
But an over-excitable optimism regarding a complete resurrection of the pre-Covid economy ought to be cautioned against. In spite of the vaccine, a new type of normal may very well be imperative. Firstly, and on a more pragmatic front, it is simply unlikely that a vaccine will become widely circulated before further economic decline. With the death of more than 250,000 Americans and a further average of 158,265 cases being recorded daily, whilst the US economy is unlikely to enter a double-dip recession, with the current progress, the economic output will still be 4% lower than outside a pandemic. This assessment of a further decline before a possible recovery further adopts an idealistic assumption: that everyone will be willing to be vaccinated. A study commissioned by Deutsche Bank revealed that only half of Europe’s population is persuaded of the safety of vaccines. A Gallup polls survey further indicates that only 58% of Americans are willing to get vaccinated. At least a positive incline from the damning 50% in September.
Second, in the absence of a vaccine, the economic impact of Covid-19 could globally cost $3.4 trillion annually. With a vaccine, the results don’t prove much better: a vaccine would cost $1.2 trillion annually. In addition to this, in the absence of availability of vaccination in the poorest countries, $153 billion could still be lost: the EU losing $40bn, the US $16b, and the UK anywhere between $2bn and $10bn. It seems inherent in our having entered a pandemic that a full economic revival can never be attained.
Thus, whilst vaccination has certainly instilled much hope in the market and has boosted morale, the economic wounds it heals are bound to leave some scarring.
