Following the 2nd quarter economic meltdown of 2020, major economies rebounded in the 3rd quarter.
A reopening of borders and businesses spurred the recovery. Many hoped that the worst of the COVID-19 pandemic had passed.
Going through the 4th quarter, however, conditions deteriorated rapidly once more.
The number of COVID-19 cases soared across the U.S, Europe, and beyond.
Amidst the doom and gloom, the Chinese economy provided a glimmer of hope.
Last week, 4th quarter GDP numbers impressed. While a spike in new COVID-19 cases in China muted the impact of the stats on riskier assets but the recovery was plane to see.
Other economies, have been less fortunate.
Those most at risk of an extended period of contraction are economies most dependent upon consumption and tourism.
For now, the global financial markets appear to be signaling a more uniform global economic recovery through 2021.
The latest COVID-19 numbers, vaccination rates, and containment measures paint a different picture, however.
The Economic Calendar
Next week, 4th quarter GDP figures are due out of the U.S, Germany, and France to name but a few.
Looking at the forecasts, the U.S economy is projected to grow by 4.4% in the 4th quarter.
It’s a different story for France and Germany, however.
Extended lockdown periods through late 2020 will likely lead to another sizeable quarterly contraction.
Economists have forecasted the French economy to contract by 3.2% and Germany’s by 4.6%.
Relative to the 2nd quarter of 2020, the contractions are relatively mild. By historical standards, however, these are quite dire forecasts.
According to the Bloomberg Vaccination Tracker, the U.S vaccination rate was 5.23 doses per 100 people as at 20th January.
With President Biden’s aim of 100 million vaccinations in 100 days, this is expected to accelerate in the coming weeks. The numbers have already picked up from quite dire levels just last week. As at 10th January, the U.S had had a vaccination rate of just 2.44 doses per 100 people.
While other countries face supply issues, this has not been the case for the U.S. To put it into perspective, 48% of shots distributed to states in the U.S have been administered. In numeric terms, 17.18 million doses have been administered.
Much will now depend on whether the U.S President meets his 100 million target or needs to reintroduce lockdown measures.
At the time of writing, the total number of COVID-19 cases in the U.S sits at 24,998,975, with the total number of deaths hitting 415,894.
Any acceleration in new cases and the U.S government may have little choice but to contain the spread. With labor market conditions still in dire straits, this would have painful consequences for the U.S economy.
The only goods news is that the Democrats now control both houses. Delivering fiscal support should be easier. Bringing unemployment back to pre-pandemic levels, however, is likely to be a far more difficult task.
Elsewhere, a number of governments have made strong progress in driving vaccinations. This bodes well for more rapid economic recoveries. These nations are few and far between, however.
Israel continues to lead the charge, with a vaccination rate of 32.56 doses per 100 as at 20th January. The U.A.E remains ranked 2 in terms of vaccination rates. (20.11 doses per 100 as at 19th Jan).
As at the 20th January, the UK is also at the top end of the table, with a vaccination rate of 7.59 doses per 100.
For the EU, however, the slow authorization of COVID-19 vaccines and apparent bad planning has been reflected in the figures.
EU wide, the vaccination rate stood at just 1.51 doses per 100 people as at 20th January. When considering the fact that the total number of COVID-19 cases is more than 10 million, this remains a concern.
Not only are we likely to see economic divergence globally but also within the EU.
Germany’s vaccination rate stood at 1.56 doses per 100 as at 20th January. By contrast, France’s vaccination rate was just 1.07.
Italy and Spain were amongst leading EU member states with rates of 2.07 and 2.21 doses per 100. These rates are also on the lower end for developed nations, however.
For a full breakdown of vaccination rates by country, please visit Bloomberg Vaccination Tracker page here.
Supply and Demand
Since the approval of vaccines in the U.S, Europe, and beyond, supply has become a focal point.
Back in December, we had highlighted supply as a key consideration as governments procure vaccines.
Some governments have been able to secure enough vaccines to inoculate 100% of their populations.
Others will barely touch the surface and will have to wait.
When considering the vaccination rates today and the need for 2 doses, it could be a long wait.
Some governments will undoubtedly be wanting to avoid going into another winter once this winter season passes.
Until there are more vaccine options and greater supply, however, this remains a credible risk for some.
Johnson & Johnson is key due to its goal to deliver a single dose vaccine. AstraZeneca remains key due to is affordable and easy to transport vaccine, not to mention manufacturing capabilities.
Government agencies including the EMA will need to authorize the use of these vaccines more hastily to support a speedier economic recovery.
The markets can then begin to look to developing economies that have continued to struggle since the beginning of the pandemic. Failure of the likes of Europe to catch up with the U.S and even the UK, could lead to an economic decoupling.
The Latest COVID-19 Numbers
At the time of writing, there were a total of 97,384,877 confirmed COVID-19 cases and 2,085,507 related deaths.
By geography, the U.S had reported 24,998,975 cases and 415,894 COVID-19 related deaths.
India reporting 10,611,719 cases, with Brazil reporting 8,639,868 cases.
Sitting behind Russia (3,655,839) remained the UK (3,505,754).
France (2,965,117), Italy (2,414,166), Spain (2,412,318), and Germany (2,090,161) reported a combined 9,881,762 cases.
Existing vaccine providers are going to need to materially increase supply in order to support the bullish outlook towards the economic recovery.
Market sensitivity to reports of any supply constraints will likely build in the current quarter. Failure to ramp up vaccination rates coupled with supply constraints would have an even more material impact on risk sentiment. All of this is before considering a continued rise in new cases and further extensions to lockdown measures.
For now, the pressure will be on the likes of AstraZeneca and Johnson & Johnson to deliver.
At some point, however, the focus may well shift to how well or how badly governments have performed.