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The economic impact of vaccines

Written and accurate as at: Apr 26, 2021 Current Stats & Facts

A spike in Indian cases reminds the world of Covid’s ability to spread exponentially in certain conditions. There has also been a deterioration in developed countries such as Japan and Canada.

This highlights the risk that we will see a two-tier global economy based on access to vaccines. Beyond the human and health implications, this could constrain the global recovery, putting pressure on commodities such as oil and underpinning the fall in bond yields.

There is some positive news out of the EU, where new cases have begun to decline. A recent upturn in the US has also rolled over. We have not seen a significant wave develop outside of Spring break, rolled-back restrictions, and the rise in cases in Michigan. New US cases are down 11% week-on-week, and hospitalisations are 3% lower.  

There is a view building that the US is getting close to herd immunity. Some 42% of the population has had at least one shot — the threshold at which cases started dropping significantly in Israel.

This includes 54% of the adult population and 80% of the most vulnerable segments. About a quarter of the US population has been previously affected. There is evidence that children (a material part of the unvaccinated portion) are less likely to spread the virus.

Excess vaccines are an issue to watch as the US program begins to slow.

In the past week, vaccinations fell from 3.6 million per day to 3.3 million. This was partly due to the Johnson & Johnson vaccine suspension, but we also saw a 12% drop in the number of Moderna vaccines administered.

This rate should recover as Johnson & Johnson becomes available again. Surveys suggest that roughly 60% of Americans who actively want the vaccination should have received at least an initial dose by mid-May.

We then need to watch what happens with Americans who want to wait and see (about 20%), those who will take it if required (about 10%), and the remaining 10% who are not prepared to take it at all.

The key question is: when will excess US vaccines become available to potentially direct to other countries.  Now that supply has ramped up, and the US should have enough to fully vaccinate 335 million people by May and 395 million by June.  While the US is likely to stockpile many top-ups, there should be significant scope to direct vaccines to countries in need. This development could emerge in the next two months and see a very positive shift in sentiment.

In summary, while the near-term surge in cases is concerning and weighs on growth expectations, the good news is:

  1. Overwhelming evidence that vaccines work
  2. The supply chain is ramping up materially
  3. Current concerns may be resolved in a few months

US media coverage last week focused on proposed increases to income and capital gains tax as part of the Biden Administration’s American Families package. Details about Bidens tax hikes will be put to Congress this week.

Tax hikes are not new news – they were first outlined in Biden’s presidential campaign. The reality is, this is the much more controversial part of Biden’s plan and will encounter a much tougher passage through Congress.

While tax hikes should emerge, they are likely to be smaller than the proposed numbers.


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