News in Charts: Assessing the vaccine rollout and the path ahead

The number of global, new, confirmed cases of COVID-19 is on a downward course, with case numbers halving since the peak in January. This level still appears high relative to numbers seen before the second wave around October, but the difference in levels of testing makes direct comparisons difficult. The level of deaths appears to be a clearer measure as it does not depend in the same way on the level of testing and remains higher than the levels seen for most of the pandemic.

It seems probable that a mixture of non-pharmaceutical interventions (NPIs), voluntary social distancing, existing immunity, seasonality and vaccinations have all played a role in reducing cases. Through the crisis, disentangling the precise effects of each has proven challenging, making it difficult to forecast the evolution of the disease with any accuracy. However, there is good reason to believe that this will change as the impact from vaccines becomes increasingly pronounced.

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While the virus is unlikely to disappear any time soon, the outlook for many countries appears favourable given existing and planned vaccine rollouts. Israel continues to lead the world, with more than half of its population having received at least one vaccine dose. The UK and US are faring better than most other advanced economies. European Union member states continue to be relative laggards, with less than 5% of the EU population having received at least one dose so far. However, that number is expected to increase substantially in the coming months as supply ramps up. Injections should have material benefits. Indeed, there is clear evidence already of a vaccine effect, with hospitalisations among older age groups in both Israel and the UK falling faster than the general population.

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The decline in COVID-19 deaths since January among UK over-75s, who were prioritised for jabs, has been twice as large as that for those aged 40-74. Moreover, recent studies suggest that vaccines are also effective in reducing infections. Assuming a vaccine-resistant strain does not become dominant, not only will hospitalisations and deaths drop sharply as inoculations are more widely rolled out, but so too will transmission, itself helping to reduce the likelihood of potentially dangerous mutations.

Overall, our baseline view is that COVID-19 will become less of a health and economic emergency as the year progresses, particularly in Europe and the US as vaccines are widely rolled out. This should result in a sharp bounce in economic activity as restrictions are unwound and people become less fearful. There is clear evidence of rapid economic recoveries in countries that have successfully controlled the virus without vaccines, including in Australia, China, New Zealand and Taiwan. There is good reason to think a similar process will take hold in countries that control the virus via vaccination. This is particularly true as extended lockdowns have coincided with fiscal support that has left household balance sheets healthy, at least in the advanced economies. In the US, for example, aggregate household savings over the past twelve months are $1.8 trillion higher than they were in February 2020, with further fiscal support expected this month.

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If a quarter of the build-up so far is unwound in the form of personal spending this year, that alone would boost GDP by two percentage points. However, the extent to which households will spend remains highly uncertain, particularly as savings are disproportionately concentrated among higher earners who tend to have lower marginal propensities to consume. Meanwhile, there remain downside risks to the economic outlook, in the form of scarring from increases in corporate debt as well as the potential for vaccine-resistant strains to become more widespread. Finally, there is the risk that increases in demand result in fears about inflation or actual inflation. Either would push long-term interest rates higher with an associated tightening in financial market conditions.

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