Global economic recovery hinges on vaccine success

Putnam Fixed Income Team, 02/22/21


  • The pandemic is ebbing in some of the countries, but Covid-19 cases have broadened geographically.
  • Vaccine supply and efficacy remain a concern as governments weigh a return to pre-pandemic activity.
  • Global growth may accelerate in the second quarter and will depend on vaccine rollouts.

The global coronavirus pandemic is ebbing in some countries, including the United States, parts of Europe and Japan, after peaking in January. But the number of new cases has been broadening worldwide, especially in China and South America. This is raising questions about the supply of vaccines, the efficacy of available doses and the pace of global economic recovery.

Virus affects every region of the world

The decline in infection rates is largely due to the stringent mobility restrictions in place, especially in Europe. Authorities have adopted pre-emptive restrictions as concerns rose over more infectious Covid-19 strains. In the United Kingdom, Prime Minister Boris Johnson said the lockdown could be extended into the summer. But as case counts fell, Johnson indicated a willingness to ease some of the restrictions.

In the United States, case counts as well as hospitalizations have been declining. As a result, some states started to ease mobility restrictions at the end of January. In China, the reverse has happened; as the local infections rose, policy makers introduced travel restrictions during the Lunar New Year celebrations.

Inflation chart

Vaccine shortages and efficacy rates plague countries

On the vaccine side, there are two issues: inadequate supply and vaccine efficacy. Supply has determined the pace of vaccinations as people become less hesitant to be inoculated. Short-term vaccine shortages continue to be a problem, especially in Europe and Canada. Pfizer Inc. and BioNTech SE have raised the production target of their Covid-19 vaccine this year. However, Pfizer decreased deliveries of the vaccine outside the United States as it renovates its plant in Belgium. That has affected Europe and Canada.

The European Union (EU) had lagged other major economies in its pace of vaccinations. A mini vaccine war erupted between the EU and AstraZeneca after the Anglo-Swedish drugmaker said it will cut initial deliveries to the EU due to the manufacturing delays. The EU threatened to impose export restrictions on vaccines manufactured within the bloc. The United Kingdom imports the Pfizer/BioNTech vaccines from the EU, raising tensions during the first month of Brexit.

In addition to supply issues, there are two issues surrounding the efficacy of vaccines, in our view. The first is how much protection they offer against new variants. While researchers are still investigating their effectiveness against emerging variants, early studies signal lower efficacy rates, especially against the South African variant. So, vaccines may need to be tweaked.

The other issue relates to human behavior. If available vaccines reduce the severity of infections but do not totally prevent the disease, how will the public respond? While it is too early to have a strong view on this, it is important to pay close attention to countries that are leading in vaccination efforts.

Israel's swift rollout and herd immunity

Israel has diverged from the rest of the world with its rapid inoculation rate. Several factors have contributed to this, including cultural and organizational preparedness. Israeli authorities are experienced in planning and navigating emergencies given ongoing geopolitical tensions. With the vaccines in hand, they put those skills into use. The swift vaccination rollout has made the country the largest real-time study of Pfizer's vaccine. Israel has vaccinated 45.8% of its estimated 6.76 million residents, while 30.3% have been fully vaccinated (received all required doses of a vaccine), according to the latest coronavirus vaccination data in the New York Times.

Israel has diverged from the rest of the world with its rapid inoculation rate.

Despite reports of the vaccine's effectiveness in Israel, Covid-19 cases followed the global trajectory. As infection rates rose, there was a third lockdown in late December. The positivity rate peaked about two weeks after the lockdown. Hospitalizations, which tend to lag the case counts by five to seven days, also peaked. Since then, there has been a reduction in new cases since the peak in mid-January.

The Israeli example has two implications. First, even with this pace of vaccination and a supportive demographics, they seem to be far away from herd immunity. The 60%–65% target for herd immunity may need to be raised. This may be due to new variants or something else; but what matters is that it prolongs the path to herd immunity. Second, even if new infections are milder, people may still remain cautious. It is unknown if populations will return to pre-pandemic lifestyles. This risk will not change the direction of economic activity but will slow the path to normalcy.

Consumer spending remains mixed

In the United States, which has largely avoided major lockdowns, consumption has the potential to pick up as the December fiscal stimulus kicks in. In Europe, risks are still to the downside. Mobility remains constrained, vaccinations lag, and there are local Covid-19 flareups in the southern part of the continent.

Global industrial activity remains strong, supported by low inventory levels and robust demand for technology products. Construction continues to recover, while the gap between manufacturing and services has widened.

If the winter wave of coronavirus peaks in Europe, the United States, and emerging markets, global activity is likely to start to accelerate in the second quarter of 2021. The United States is likely to lead other major economies — except China — during the acceleration phase, buoyed by additional fiscal stimulus and vaccination rollouts. These forecasts come with an unusual degree of uncertainty. Our medium-term projections are based on one exogenous factor — the vaccine. The Covid-19 pandemic has structurally changed the economy. How the economy will look like post-pandemic is hard to predict.


This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The companies mentioned above are intended solely to help illustrate the current status of the Covid-19 vaccine supply and its potential impact on the global economy. It should not be assumed that an investment in the companies identified was or will be profitable. As with any investment there is a potential for profit as well as the possibility of loss.

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