The current pace of improvement around the world is remarkable.
In our 2021 Outlook, we highlighted five key forces that we thought would define the global recovery. The first key force was the trajectory of COVID-19 and the impact vaccines might have. When we published the piece in early December, the world was on the cusp of starting a massive vaccination campaign, COVID-19 cases were very high and rising in many parts of the world, and new variants were concerning. Since then, the situation has improved markedly, and the news on the vaccine front has been positive—though notably, rollout has been uneven across economies, with Israel, the United Kingdom, and the United States. leading while the Eurozone and several Asian economies are lagging. Here’s our take on where we are and where we might be heading.
1. The current pace of improvement around the world is remarkable.
Globally, the seven-day average of new COVID-19 cases is 44% below its prior peak on January 11, 2021. In the European Union (-49%), the United Kingdom (-72%) and the United States (-58%), new cases are down substantially from their peaks, which for the United States was just three weeks ago. It took around two months for a similar drop from peak after the summer wave. A scan across most countries is similarly encouraging.
Further, in the United States, current hospitalizations are down 33% from peak levels, and the trend is that there are over 2,000 fewer patients hospitalized with COVID-19 every day. To illustrate how remarkable that is, if this pace continued, COVID-19 hospitalizations would be zero by the middle of March. Of course, that is probably too optimistic, but the situation is improving rapidly. Which begs the question…
2. Are vaccines already helping?
Short answer: It is probably too early to tell, especially given dispersion among different economies’ vaccine rollouts.
To be sure, there are some tentative positive signs that vaccines are having an impact for a number of countries (cases are falling more rapidly than would be expected among those aged over 80 in the United Kingdom, and cases and deaths are declining a bit more quickly in long-term care facilities in the United States). However, the most encouraging evidence so far comes from Israel, which is currently leading the global vaccination race.
The Israeli Ministry of Health has released data that suggests that of the almost 750,000 people over the age of 60 who were studied after their vaccine regimens, only 38 ended up hospitalized with COVID-19. Another study conducted by Maccabi Healthcare Services found that only 31 people (out of 163,000) who had been fully vaccinated became infected with COVID-19 in the first 10 days of protection. The vaccine trials showed both strong efficacy and, perhaps more importantly, that they drastically reduced the risk of severe illness or hospitalization. A replication of those results in other regions could make us all optimistic.
In Asia, the vaccine rollout has been slower to take off. That said, many economies in the region will look to potentially accelerate vaccine rollout in the coming months. China will likely ramp up vaccination in March, and Hong Kong and India have already begun priority rollouts in the last few months (with a broader rollout in Q2, subject to availability). In Indonesia, Malaysia, Korea, Singapore, Taiwan, and Thailand, vaccination programs are scheduled to start in 2H 2021. The Philippines is looking at Q4 2021 and early 2022 as a possible start date.
3. When could we start to see a real impact on new case growth?
Our colleagues in the Investment Bank recently published an interesting piece1 that sought to answer the question, using Israel as an example. They note that vaccines have two potential benefits: the reduction in risk of infection and severe disease in the vaccinated person (direct benefit), and the potential reduction in transmission as the population of vulnerable people declines (indirect benefit). After making some assumptions around vaccine efficacy in reducing spread, the impact of social distancing, new variants, and some other factors, they find that in just two weeks the daily reduction in cases could be at -5.1% from -3.4% per day now: around 33% faster. In short: Keep watching Israel. If the number of cases falls substantially in the next several weeks, it could mean that vaccines are having a powerful impact on transmission.
The bottom line is that we are marginally more optimistic on the impact of vaccines now than we were in early December, especially for the United States and the United Kingdom.
The supply and access issues that hampered the early rollout in the United States could be alleviated as more doses are delivered. Vaccines are proving to be effective at not just preventing infection, but, more importantly, at preventing severe illness and hospitalization. The new strains are concerning, and a new strain that dodges the vaccines completely remains a key risk, but the early returns suggest that the jabs are effective at preventing severe illness caused by the variants that currently exist.
Indeed, financial markets are reflecting the optimism and differentiating between fast and slow vaccinators. The MSCI Israel stock index is up 16% over the last three months, and the British pound and the U.S. dollar have strengthened against the euro amid the slow rollout across the Eurozone. For now, we think it makes sense to stick with the positioning we have recommended: a tilt toward stocks relative to bonds, and a focus on individual companies and sectors that could benefit from pent-up demand and mobility in a vaccinated world. Oh, and you might not have to cancel your summer trip this year. Just keep your fingers crossed with us.
All market and economic data as of February 8, 2021 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
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