A tale of two hemispheres: Economic recovery from COVID-19


Ian Pizer

While much of the developed world appears to be on the road to recovery, aided by the rapid roll-out of vaccines, the outlook for many poorer countries is far less favourable, says Head of Multi-Strategy, Ian Pizer.

The global economy looks to be recovering from the COVID-19 pandemic faster than once seemed probable, with the International Monetary Fund (IMF) predicting six per cent growth in 2021, aided among other things by huge fiscal stimulus, especially in the US.[1]

That would represent the fastest pace of global expansion in almost half a century. However, the headline figure masks a big divergence between the prospects for many richer nations and the bulk of poorer ones.

The IMF sees US GDP exceeding its pre-pandemic level this year. Although the majority of advanced economies are not expected to pass this milestone until 2022, for many emerging market and developing economies, with the notable exception of China, this is unlikely to happen until well into 2023.

The IMF predicts cumulative per capita income losses over 2020–22, compared to pre-pandemic projections, equivalent to 20 per cent of 2019 GDP in emerging markets and developing economies (excluding China). In advanced economies, losses are forecast at 11 per cent.

Much of this disparity can be explained by stark differences in the pace at which vaccines are being rolled out. Whereas the accelerating rate of deployment across the developed world is allowing more economies to reopen, most emerging nations are a long way from doing so. Indeed, as the tragic events in India and Brazil illustrate, several are still far from being able to declare victory in the battle against the disease.

India has struggled in recent weeks to cope under the weight of an explosion of coronavirus cases. In the week ended May 17, just two months after health minister Harsh Vardhan declared the country was in the “endgame” of the epidemic,[2] daily infections averaged 320,000, while deaths averaged 4,100.[3] Most experts believe these are substantial underestimates.

Contagion threat?

Concerns have been voiced that the rapid spread of the disease in India and other parts of the world could potentially pose a threat to richer nations, even those well on the way to fully vaccinating their adult populations, as new strains emerge that can evade vaccines.

So far, while it appears some variants reduce neutralisation by antibodies, this is not the cause of the crisis emerging in India. Indeed, evidence from laboratory-based studies suggests the B.1.617 variant now prevalent in the country is less able to evade antibodies generated by vaccination or by natural infection than either the Brazilian or South African variants, P.1 and B.1.351.[4]

Another lab-based study showed Covaxin, the inactivated-virus vaccine being developed by India’s Bharat Biotech International, is effective in neutralising the new strain and should retain efficacy against the variant.[5]

This backs up findings from other studies around the world suggesting current vaccines, or at least the mRNA versions made by Pfizer and Moderna, remain effective against all currently known strains.

A recent study in Qatar showed full Pfizer vaccination offered 75 per cent protection against infection with B.1.351, the variant which exhibits the greatest reduction in neutralisation levels in lab tests. While the study showed the importance of both doses to provide protection, and even though this marked a 20-percentage-point reduction from the vaccine’s effectiveness against the original ‘wild-type’ strain, no severe infections were reported. The vaccine also offered 97 per cent protection against severe infection from any variant.[6]

These findings are supported by evidence from Israel, a country where around 60 per cent of the population had been inoculated with the Pfizer vaccine by mid-May. It has reported several people being infected by the South African variant, but on each occasion the disease failed to gain a foothold.

Separately, a trail by Moderna, designed to measure the immune response of boosters, showed a third dose of its vaccine boosted the immune response to B.1.351 to the same level two jabs did to the original strain. Better still, an updated booster designed to target the South African variant was even more effective.[7]

Convergent evolution

The challenge of staying ahead of immune evasion is more moderate than might have been feared because SARS-CoV-2 is evolving in a more straightforward fashion than other viruses, such as common influenza. Whereas normal flu constantly evolves in quite a radical way, SARS-CoV-2 is currently exhibiting a process known as convergent evolution. This is where organisms with independent lineages independently evolve with similar traits as they adapt to similar environments.

While SARS-CoV-2 is mutating, all the different variants seen to date seem to be drawing from a pool of common mutations. According to one US study, at least seven genetically independent lineages acquired a mutation at one particular spot on the virus’s spike protein, which it uses to latch onto human cells.[8]

If the same part of the virus repeatedly mutates around the world and becomes more frequent, this mutation very likely encodes an adaptation that helps the virus reproduce and transmit.

Essentially, radically different versions of the virus would have been expected by now if it had multiple tricks to come up with. The fact the same kind of mutations are cropping up around the world suggests the best tricks it has got to offer in terms of single mutations have been seen.

That is not to say combinations will not occur over time that give it a greater advantage, but if multiple mutations are needed for it to gain this advantage, that is a process more likely to be measured in years than months.

Vaccines stay effective

Although the continuous mutation of the virus will reduce the efficacy of current vaccines over time, the genetic sequencing of different strains, along with these trials and real-world data, means there is a growing expectation that unlike normal flu vaccines, both the Pfizer and Moderna shots will remain effective at tackling new strains for several years. Additionally, updated vaccines are likely to be created that remain ahead of the virus.

This in turn should mean richer countries, where vaccines have been deployed widely, avoid the need for further prolonged lockdowns. Elsewhere, however, it looks to be a different story. As the chart below shows, while significant numbers have received at least one dose of a vaccine, poorer countries such as Brazil, India, and Mexico are lagging far behind.

Figure 1: Share of people vaccinated against COVID-19

Note: This data is only available for countries which report the breakdown of doses administered by first and second doses. Source: Our World in Data, as at May 17, 2021

Moreover, whereas many richer nations have made heavy use of the mRNA vaccines, poorer countries have been left to use others. That is concerning given signs they may be less effective at combating some strains. For instance, one study, although admittedly small and therefore inconclusive, suggested the AstraZeneca jab offered little protection against symptomatic infection by the South African variant.[9]

While the expectation is that protection against more severe infections will remain strong, the reduction in protection against more mild infections makes the controlling of infection levels problematic. This may help explain why the current wave in Chile – which has mainly utilised the Chinese inactivated vaccine Sinovac – has continued, even though the country’s vaccination rate exceeded Israel’s when it removed the vast majority of restrictions.

This is despite evidence the vaccine offers strong protection against hospitalisation. The concern is that a lower efficacy against mild infection might mean a higher proportion of the population needs to be vaccinated to achieve herd immunity.

As for why cases have suddenly exploded in India, there is growing evidence it is because the new B.1.617 strain is even more transmissible than the so-called Kent variant, first identified in the UK and also prevalent in parts of India. Other countries, which have thus far been very successful in containing infection levels and so have very little immunity built up, could be set to follow. Nepal already appears to be experiencing a spike similar to India’s while, further east, Cambodia is starting to see far faster growth in cases, even if they remain low in absolute terms.

Although global vaccine manufacturing capacity has expanded rapidly since the start of the pandemic, the majority of poorer nations appear to be several years from having most of their adult population fully vaccinated. In the meantime, even a rapid acceleration in the roll-out of vaccination programmes will not stave off the need for some countries to employ lockdowns to control case numbers – particularly given the lag in administering two jabs to a significant number of people.

Herd immunity

That said, when one considers the number of cases being reported, and the fact they are likely heavily underestimated, India will be building up immunity that will make it harder for the virus to spread. Studies suggest previous infection offers a high degree of protection for several months.

A UK study of convalescent healthcare workers found that having previously been infected offered 83 per cent protection against reinfection for at least five months.[10] Moreover, those reinfected were far more likely to be asymptomatic or suffer mild symptoms than the first time around. Coupled with restrictions on social activity, this means waves such as that seen in India will end long before vaccines are having a material impact.

The successful development of several effective vaccines means the world has the tools to get on top of this disease by tweaking vaccines as and when needed, massively increasing production, and ensuring an equitable distribution of them.

Much will depend on the stance taken by richer nations. After all, poorer countries arguably have bigger issues to deal with. Malaria, for instance, is estimated to kill close to 400,000 people a year in Africa, more than three times as many as have so far died of SARS-CoV-2.[11] As for India, deaths from tuberculosis totalled 445,000 in 2019, nearly double the 253,000 reported to have succumbed to COVID-19 in 18 months.12

The World Health Organisation’s COVAX programme aims to vaccinate 20 per cent of the most vulnerable people in every country. But a far more ambitious programme is needed to stand a chance of eradicating the disease. Whether richer nations choose to bankroll the effort remains to be seen.

Unless they do, developing nations seem likely to endure an ongoing risk of further waves for many years. As for developed nations, most economic sectors seem set for a return to normality with one exception: international travel and tourism. Even in the West, a return to the kind of open borders that preceded COVID-19 looks some way off so long as the disease is circulating in other parts of the world.

While the global outlook may have improved, transmission patterns of the virus and the pace at which vaccines are rolled out are likely to have a big say in how individual economies perform this year and beyond.

Market implications

In a period of sharp economic growth, one would usually expect emerging market equities to outperform. Not this time. The risk of a future wave of infections will weigh on sentiment for far longer than in developed markets. Moreover, these countries have far less flexibility when it comes to deploying monetary and fiscal support to cushion the economic hit of the crisis and drive the recovery.

The outlook for developed equity markets looks brighter given the anticipated rapid economic growth. Although the most positive environment for equities seems behind us, rising earnings should still outweigh the impact of higher real interest rates.

As for developed bond markets, we expect yields to rise further as investors continue to adjust to the improved economic outlook. With policymakers explicitly adopting an increasingly pro-inflation stance, fiscal policy in maximum stimulus mode and suppressed household spending potentially returning rapidly, elevated inflation presents a growing threat not just to government bonds, but other asset classes too.

In emerging market debt, the sustainability of fiscal positions is likely to come under more scrutiny. The risk is that where a renewed wave of infections causes a country to impose curbs on economic activity, investors quickly judge it to be in danger of default.


[1] ‘World Economic Outlook: Managing divergent recoveries’, International Monetary Fund, April 2021
[2] ‘Harsh Vardhan says India is in the endgame of Covid-19 pandemic’, Hindustan Times, March 7, 2021
[3] ‘Coronavirus: India’, worldometer, as at May 17, 2021
[4] Isabella Ferreira et al., ‘SARS-CoV-2 B.1.617 emergence and sensitivity to vaccine-elicited antibodies’, May 9, 2021
[5] ‘Covaxin found to neutralise 617 variant of COVID-19, says Dr. Fauci’, The Hindu, April 28, 2021
[6] Laith J. Abu-Raddad, ‘Effectiveness of the BNT162b2 Covid-19 vaccine against the B.1.1.7 and B.1.351 variants’, The New England Journal of Medicine, May 5, 2021
[7] ‘Moderna announces positive initial booster data against SARS-CoV-2 variants of concern’, Moderna, May 5, 2021
[8] Emma B. Hodcroft et al., ‘Emergence in late 2020 of multiple lineages of SARS-CoV-2 Spike protein variants affecting amino acid position 677’, February 21, 2021
[9] ‘Covid: Oxford jab offers less S Africa variant protection’, BBC, February 7, 2021
[10] ‘Covid-19: Past infection provides 83% protection for five months but may not stop transmission, study finds’, thebmj, January 14, 2021
[11] ‘Malaria’, World Health Organisation, April 1, 2021
[12] ‘TB Statistics India – 2019, incidence, prevalence’, TBFACTS.ORG, March 2021

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