Vaccines and an Economic Rebound: Will this Silver Bullet Hit its Mark?
Updated: Nov 12, 2020
By Cian Davitt, Junior Macro Analyst at University College Dublin Student Managed Fund
Approaching Christmas, the big request on every economist’s list is the highly anticipated COVID vaccine. However, can we get our act together to look past the sole approval stage of a vaccine programme? This so-called ‘Silver Bullet’ announcement is hoped to resuscitate the failing pubs, hotels, restaurants and revive our global economy.
As Paul Krugman has famously stated, “The stock market is not the economy”, but it is very hard to ignore the fact that the S&P 500 and the CNBC Covid-19 Testing & Treatments Index have moved in near lockstep since the market bottomed on March 23. Taking this information with a grain of salt, obstacles resulting from an unbalanced approach may impede market optimism and rattle the vaccine- oriented global economy growth projection of 7% in 2021.
Among those wishing for this silver bullet, Donald Trump has bought his way to the top of the queue. In Trump’s typical nationalist fashion, all bets are on black with the ‘Operation Warp Speed’ programme (OWS). The goal of the initiative is to provide a dose of a safe vaccine for almost every US citizen by January 2021, but despite the U.S. holding contracts to almost 2 doses per citizen of the Pfizer vaccine (BNT162); this timeline is logistically questionable given BNT162 approval hinted at late November optimistically. Unlike the EU, China and many other large contributors to global economic activity, the US has opted out of the universal COVID-19 Vaccine Global Access (COVAX) facility led by the WHO which boasts a global approach to vaccine distribution. The chauvinistic approach from the US consequently threatens a slower and uneven return to a booming global economy. To soften their cough, it is predicted that through this course of action the US would sustain self- inflicted damage as potentially bullish stock markets mask the inevitable long term damage to trade relations.
Contrastingly, Europe has placed a foothold in equitable global distribution, with Ursula von der Leyen, President of the European Commission affirming “Our strong commitment to the COVAX Facility is another sign to all citizens who need the vaccine that we stand with them, wherever they are. No one is safe until everyone is safe”. A sizable weighting of the vaccine funding from ‘Team Europe’ will be allocated to the seemingly benevolent COVAX facility (€400 million). Altogether they aim to invest €1 billion in R&D to counter the effects of COVID-19, which is dwarfed by the colossal $10 billion OWS portfolio. However, Europe must strike the balance between their philanthropic efforts and keeping enough of the pie for themselves to plug the projected 4.4% hole in GDP by the end 2020.
In addition to a rather conservative budget, an opaque cloud is surrounding the ‘European commission vaccine preparedness report’, The timeline included in the report infers that member states should prepare for the various challenges of deployment from the beginning of October. Ambiguity surrounds “vulnerable groups'' who range from prisoners, to individuals residing in dormitories, to citizens with chronic health conditions or aged over 60 years. Adding to the hazy messaging, the commission have also said that “it remains unclear if population-wide immunity will be provided once vaccination programmes will kick off”.
Lacking clinical action in guidelines at this stage in the game could prove costly for Europe, as the anticipated approval date of BNT162 draws ever closer. The bureaucracy of policy decisions of each individual country extending to ordering systems and slowed air travel logistics could be countered by implementing a European governing body to organise the vaccine plan, resulting in a more swift economic recovery for the bloc.
At this point in time, the OECD predicts a substantial 2% gap in 2021 between current worldwide GDP projections, and those that assume an efficient rollout of a vaccine. Can we ensure that the egocentric attitude promoted by the US can be subdued to accelerate balanced reconstruction of our global economy? Can we count on the adjustment of vague guidelines and stringent timelines accompanied by a more universal approach from ‘Team Europe? The list goes on but one thing is for sure; a balanced approach is key if the ‘silver bullet’ is to fulfill its potential.
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