Can a vaccine provide an instant cure to ailing economies?

Hopes of a swift return to normality in the new year might prove wide of the mark

Vaccine

As England trudged back into lockdown and daily Covid-19 cases hit record highs across the world, a ray of hope emerged last week from the typically dreary surroundings of Parliament’s committee rooms.

Professor Andrew Pollard, the head of the University of Oxford’s vaccine trial team, told MPs on the science and technology committee that he would deliver the news the world had been waiting for by the end of the year.

He said there was a “small chance” trial results of his team’s Covid vaccine candidate would mean vaccinations start as soon as Christmas.

Ending the health crisis would likely be a cure for the economic crisis. Winning the vaccine race this side of Christmas would provide countries with a shot in the arm in 2021.

But the efficacy of a new vaccine and how quickly it can be distributed are potential stumbling blocks to a rapid reopening of economies.

Nonetheless, a breakthrough in the coming weeks from either Oxford and AstraZeneca or Pfizer’s frontrunner would transform the 2021 outlook for the UK economy, forecasters say.

Not only would an early vaccine hasten the recovery and a return to normality, but it may also limit the scarring effects that permanently damage economies, such as business failures and long-term unemployment.

Goldman Sachs expects the UK to have one of the largest boosts to growth from a vaccine. The Government has signed multiple deals to secure doses from the vaccine frontrunners, including the AstraZeneca and Pfizer candidates.

Under an early breakthrough, Goldman predicts the UK would start vaccinations in the first quarter and distribute them widely in the early second quarter, just ahead of Europe.

The UK may also disproportionately benefit from a vaccine due to its reliance on “social consumption” – spending that involves interaction with people, covering everything from bars to live sports. “Without a vaccine, it’s quite hard to have a sustainable recovery,” explains Sanjay Raja, Deutsche Bank UK economist.

“A vaccine gives us the path to a sustainable rebound in the UK with fewer interrupted rebounds, and ultimately limits the scarring.”

He says an effective vaccine would also boost consumer and business confidence, resulting in a “modestly stronger rebound in the first half” of 2021. Raja says the effects of a vaccine will be positive but warns it is “not going to be an instantaneous impact on growth and activity”.

Experts warn an early vaccine will not be the instant panacea for the global economy that many hope. Its effectiveness, plus the execution of a mass vaccination programme, are difficult hurdles.

The lower the efficacy, the more people that will be needed to be vaccinated to achieve herd immunity and the slower economically damaging measures can be lifted. For example, if the efficacy was 100pc, only 60pc of the population would need to be vaccinated, according to Deutsche.

But the minimum efficacy threshold that the World Health Organization recommends is just 50pc, meaning it would only protect half of those who received it, and the first vaccine approved may not be the most effective.

UBS estimates an approval this year will result in 3bn people being covered by the vaccine by the end of 2021. However, that would mean just a third of the global population are protected at that point if the vaccine is only 60pc effective and 10pc are already immune from catching the virus.

Herd immunity and a return to normality for the economy could arrive sooner if pharma giants can ramp up production quicker, the vaccine is more effective and improved treatment and testing help to suppress cases. In this more optimistic scenario, herd immunity could be achieved by the end of next year, the bank says.

“If preliminary results suggested efficacy of 70pc or higher, however, a vaccine would come close to being a truly game-changing panacea,” says Robin Winkler at Deutsche.

Other factors could stand in the way of achieving herd immunity quickly, however. In the age of “anti-vaxxers”, a sizeable proportion may refuse a vaccine. The length of immunity is also contested. Once vaccinations have started and vulnerable groups become protected, the Government will then have to decide how quickly it can reopen the economy.

“I think the Government will just gradually release things when people have been vaccinated and will just see what happens to the infection level,” says Adam Barker, healthcare analyst at Shore Capital. “I don’t think it’ll just be a full ‘there we go, everything’s back to normal’.”