Figure 1: Biweekly Confirmed Deaths per million
Source: Our World in Data
While vaccinations are allowing official social distancing relaxation in most DM economies, different vaccination paths elsewhere means that COVID remains a threat in many countries for health systems and the pace of economic recovery. Scientists are warning that the Delta variant is becoming dominant in many countries after already becoming widespread in India and the UK. Though data in the UK so far shows that vaccines reduce hospitalizations by 92-96% for fully vaccinated people, the UK has over 50% of the population double-vaccinated and this should surge to 70% by late summer. Russia has had a Delta wave, which has led to a surge in case and deaths (Figure 1) given the much lower percentage of fully vaccinated people. Scientists are estimating that 85% of the population would need to be vaccinated or have had COVID to achieve herd immunity with the Delta variant. Some 60-70% of the total population could provide some form of herd immunity and reduce the links between cases and deaths, but could still mean COVID waves this winter that cause some voluntary social distancing. Our economic views incorporate that the differential rollout of vaccines will mean that recoveries are unsynchronized and that domestic conditions need to be followed closely.
For economists, further COVID waves do not derail rebounds but rather delay recoveries. For the EZ/UK, the current Delta wave can temporarily increase social distancing and see a partial reversal of some social distancing (e.g. Netherlands). We remain concerned that vaccine hesitancy in Russia and Japan could mean that vaccinating 60-70% of the total population is very difficult to achieve. We are also concerned that Asian countries including India are vulnerable to a Delta wave in the next few months or a winter wave, though high vaccination rates in China suggest it is now better protected and lower risk.
What about Delta plus and Lambda? Scientists argue that Delta plus is very similar to Delta. This still makes it a problem, but it is not a breakout mutation like Alpha and Delta, which have spread worldwide and caused new waves in 2021. Meanwhile, the Lambda variant was first seen in Peru in December 2020, but appears to have peaked into the spring (Figure 1). More importantly, as with Beta and Gamma it is not spreading across as many countries as Alpha and Delta and also is not yet a variant of concern. For now, the next six months are mainly focused on a vaccination race against Delta for major EM countries. Any adverse impact on financial market sentiment will likely be temporary and localized.
Could a variant bypass vaccines and cause a new global wave and renewed lockdowns? This is possible and we attach a 20% probability to such a scenario, within our overall adverse scenario. However, scientists argue that COVID is a conservative virus in terms of mutations and the odds remain that vaccines can guard against mutations, though this will likely require boosters to increase effectiveness.