December 4, 2020

News in Charts: The differing impacts of the pandemic across countries and sectors

by Fathom Consulting.

If you only looked at COVID case numbers, November would appear to be exceptionally gloomy, with cases rocketing and deaths following suit a week or so later. But mere case numbers are not a safe way to gauge the pandemic, as testing regimes have changed dramatically since March and vary between countries. What is clear is that the number of fatalities is mounting – although fatalities from any cause will normally tend to rise in the northern hemisphere at this time of year. Looked at in that way, the data indicate causes for optimism, as it is becoming clear that so far the second wave is substantially less aggressive than the first.

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Between countries, the trajectory of the disease is far from uniform. Deaths attributed to COVID are high and rising as a share of the population across a range of advanced economies, despite widely differing approaches to controlling the disease. By contrast there are some advanced economies where the fatality rate is much lower, Germany and New Zealand, for example. In the case of New Zealand, a highly effective lockdown early on has proved an extremely successful strategy. The relative success of the German strategy meanwhile merits a good deal more analysis – they locked down early, but so did many other European countries who have subsequently seen their fatality rate soar. Much remains to be understood about what determines these patterns.

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The second-wave increase in excess mortality is clearly visible. The number of deaths in the UK from any cause spiked in week 46  of 2020 – yet it remains below where it was on average in most years prior to 1995. That contrasts sharply with the experience of the first wave, when excess mortality far exceeded anything seen over the period since 1970. The second wave is, so far, much less deadly than the first.

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The Office for Budgetary Responsibility has assessed the likely short-term impact of the virus on the UK economy at the sectoral level. The magnitude of those impacts provides ample justification for the massive policy stimulus put in place by the UK government, and indeed every government in the developed world. The likely availability of highly effective vaccines in the New Year supports the case, if anything, for even more aggressive policy stimulus: the economy remains fragile and the disease real and harmful until those vaccines are widely available. Without an effective vaccine, they would have to be thinking about long-term strategies for managing the virus and its impact on the economy. With one, it is just a question of navigating safely through the next few months.

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The huge stimulus from macro policy is essential to support the economy in the absence of a vaccine – but it will continue to provide that boost once the vaccine arrives: and, again, that is entirely appropriate in the short term. The global economy has just experienced the steepest recession of all time, and it remains substantially below its long-run equilibrium. That lost ground will be recovered in large part from the second quarter of next year onwards: the second quarter is likely to be an exceptionally strong quarter, presuming the vaccines are rolled out early in the New Year.

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While the economy is set to recover strongly next year, some sectors may never fully bounce back. International air travel has collapsed almost completely and, while tourism is likely to recover strongly, it could be that international business travel never returns to pre-COVID levels. People in business have learned that they can communicate with each other reasonably effectively without actually meeting face to face. Virtual meetings are likely not as effective – perhaps around 70% as effective, subjectively – but they will serve at least some of the time. The world has changed – not evenly, true, but once economies emerge from recession they will have been altered permanently by the pandemic.

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