Coronavirus: Delta variant is a much bigger threat to EMs than DMs – CE

The apparent success of vaccines at preventing severe illness and death from the Delta coronavirus variant should mean that it does not pose a major threat to recoveries in most advanced economies. However, the rapid spread of the Delta variant poses a more significant threat to recoveries in large parts of the emerging world, where vaccination rates are lower,  Neil Shearing, Group Chief Economist at Capital Economics, reports.

The situation remains in flux

“Admittedly, UK consumers and businesses may still voluntarily modify their behaviour in response to the latest spike in infections – for example by limiting trips to bars and restaurants, or by reducing capacity in shops and offices. But this will pose only a modest headwind to the broader economic recovery. We have pushed back the point at which we now expect the UK economy to return to pre-virus levels of GDP but only by a few months, from August this year to October.”

“The UK’s experience so far suggests that vaccination rates will play a big role in determining the economic damage caused by the Delta variant. Few countries currently match the UK’s level of vaccine protection, but at current rates of rollout most advanced economies will get there in the next month or so. The laggards among the advanced economies are Australia, New Zealand and Japan. The rapid spread of the Delta variant in these economies in the next quarter or so could require governments to impose new restrictions on activity and movement and cause their economies to slow while others continue to recover. And tourist-dependent economies such as Spain, Portugal and Greece may suffer if the European holiday season is disrupted by international travel restrictions.”

“The main threat is in those emerging economies where vaccination rates remain low and rollouts are progressing more slowly. That includes almost all of Africa and parts of Asia and Latin America. While the economic impact wouldn’t be as bad as in previous waves, it will still have damaging repercussions.”

“Perhaps the real lesson from all of this is that we are likely to have to learn to live with COVID-19 long-term. The break between hospitalisations may have been weakened for now but, as vaccine efficacy wears off and new variants emerge, that may not remain the case. And even if the nightmare scenario of ‘vaccine escape’ fails to materialise, most scientists agree that ‘booster’ shots are likely to be needed at some point, which could further set back the rollout of vaccines in EMs. If so, that would widen the divergence between EMs and DMs.”