MACRO AND MARKETS
Climbing out of Covid: Nearly there?
19 November 2020
Good news on the vaccine front suggests some form of normality could return sooner rather than later. However, scalability, distribution priorities, and trust in governments are among the factors that will determine the speed. flow’s Clarissa Dann share insights from Deutsche Bank Research
“Light at the end of the tunnel” has been an optimistic expression of hope around the world since last spring – even prematurely shaping our own flow analysis on 27 March. But somehow the coronavirus tunnel has carried a sense of never emerging into the daylight.1
Not going away
As Covid-19 enters the list of the top 20 worst pandemics in history new waves of the virus are breaking around the world to mixed responses, highlighting the relationships between state and populous, and the efficiency (or lack of) of testing and tracing programmes.
Jim Reid, Deutsche Bank’s Head of Fundamental Credit Strategy and Thematic Research observed in his October 2020 Monthly Chart Book,2 “New global daily cases increasing again (albeit higher testing) but deaths not picking up as much… is this just a lag, better treatment or younger population catching the virus?”
He compares Covid-19 to epidemics through the ages, noting that the world’s medical facilities are far superior today, and people healthier. “So it’s quite probable that this virus would have been more deadly through previous centuries.”
An important feature of this pandemic, Reid adds is that “It’s the first serious one in a modern welfare state-based society where the population expects to be cared for under all reasonable circumstances. As such, allowing viruses to spread as in the past is more politically untenable. Also in a globally connected world, news, information and the virus spreads quicker than it would have done a few decades ago, let alone centuries ago.”
Figure 1: Continued rise of infection cases and deaths
Source: Deutsche Bank Research – The House View (17 November 2020)
“The global number of Covid-19 cases has continued to rise. We have now passed 55 million confirmed cases and 1.32 million fatalities. In the US, many states are re-imposing restrictions in some form to check the virus spread. In Europe, the virus’ spread seems to have peaked” reports Deutsche Bank Research’s Strategist Marion Laboure in The House View (17 November).
Many governments have now started to resume lockdowns albeit imposed slightly more lightly than in the spring. “The only way to eradicate, or at least contain, the virus is with a vaccine,” Laboure and Reid confirm in their second Thematic Research report on Covid-19 vaccine progress.3
A dazzling beam of optimism has, however, appeared at the end of a dark long tunnel in the form of two vaccine breakthroughs and the prospect of more to come.
Tidings of vaccines
In our 10 September article Race for a vaccine we explained the journey of a vaccine from pre-clinical “Phase 0” to “phase 3” where it is ready for large-scale efficacy trials and is given to thousands of people to confirm safety, identify rare side effects, and measure effectiveness. Two months on, considerable progress has been made.
On 9 November 2020, the American multinational biopharmaceutical company Pfizer together with its German partner BioNTech announced early efficacy results of their Covid-19 vaccine’s Phase 3 trials of more than 90% from 94 confirmed cases of coronavirus in trial participants.
This was followed by a prediction that around 50 million doses of the vaccines should be available by the end of 2020. “We are reaching this critical milestone in our vaccine development program at a time when the world needs it most,” said Pfizer CEO and Chair Albert Bourla.
“This is an astonishing result for a first-generation vaccine. Many had not dared to hope for efficacy of anything over 70%,” commented The Economist on the news.4 The vaccine uses the genetic code of Covid-19 to start making the virus inside a human body, allowing the immune system to recognise the virus as foreign and attack it with antibodies.
Just over a week later, another US biopharma, Moderna, announced an efficacy rate of 94.5% from analysis based on the first 95 volunteers to develop Covid-19 symptoms from a trial of 30,000 in the US.5 Meanwhile UK-Swedish biopharma AstraZeneca’s CEO Pascal Soriot confirmed in an interview published 5 November that the group’s vaccine could also be ready for large-scale distribution by the end of the year.6
This means that at least two more vaccines could move out of Phase 3 into “approved with authority for use in the general population” phase before the end of 2020, but distribution of enough vaccine to, in effect, vaccinate the world was never going to be straightforward.”
Currently there are 12 candidates are currently in phase 3 trials. Five vaccine candidates among the twelve have already received approval for limited emergency use, including four in China and one in Russia.
However, distribution of enough vaccine to, in effect, vaccinate the world was never going to be straightforward.
Laboure explains why. “In total, the world will need at least 10 to 15 billion doses. That’s because most Covid-19 vaccines will require people to receive two doses by injection. It’s fairly obvious to state but that means this is going to be one of the biggest logistical challenges ever known to humans.”7 She points out that in comparison, 10 billion doses globally across all vaccines and inoculations were utilised in 2018. “Global distribution will face a bottleneck because there are only four-to-six facilities in the world that can reliably mass produce vaccines. Other issues include technology transfer, intellectual property protection, and temperature-controlled distribution.”
The other issue is distribution priorities. Coordinated by the trio of Gavi, the Vaccine Alliance, The Coalition for Epidemic Preparedness Innovations (CEPI) and the WHO, the COVAX initiative sets out to “to ensure that people in all corners of the world will get access to COVID-19 vaccines once they are available, regardless of their wealth”. COVAX says it will achieve this by “acting as a platform that will support the research, development and manufacturing of a wide range of COVID-19 vaccine candidates, and negotiate their pricing”. The first step, it adds, is to have enough vaccine doses to treat at least 20% of the participating countries' populations, which highlights that if large sections of the global population is denied access to the vaccine on grounds of cost, it will be impossible to end the pandemic.
Economic forecasts are therefore based on the likelihood that any form of widespread vaccination is likely to commence in Q1 2021 in advanced economies, specifically among high-risk groups (medical staff, people with health risk factors, essential staff in contact with many users, etc.), and then to continue more widely in Q2. “A more significant move toward herd immunity in the global population over that period and well into 2022 will allow the pace of economic recovery to pick up again starting mid-2021,” Laboure reflects. In addition, another Deutsche Bank Research report notes that just how quickly economic activity returns to pre-pandemic norms depends not only upon how effective the vaccine is, but also how comfortable people are with resuming their previous activities activities.8
This is a point also made by the IMF. In their October Economic Outlook, where the authors note that “If lockdowns were largely responsible for the economic contraction, it would be reasonable to expect a quick economic rebound when they are lifted. But if voluntary social distancing played a predominant role, then economic activity would likely remain subdued until health risks recede”.9
“Global distribution will face a bottleneck because there are only four-to-six facilities in the world that can reliably mass produce vaccines”
Route to normality?
On 17 November Reid added in A quicker route back towards normality? “Whether we can get back to normal more swiftly might largely be down to how quickly we can safely vaccinate the vulnerable groups.”
As a starting point, he explains, the largest such group can be identified by age. For example taking England and Wales as an example, 84% of Covid-19 fatalities have come from the over-70 year-old group. “This percentage won’t be too far away from other developed market economies.” In recent times, this group has also made up more than half of all hospital admissions for Covid-19 in England, which is important as lockdowns/heavy restrictions have partly been justified by the need to ensure that health services do not get overrun.
So if a successful and safe vaccine can be found that works for this group, it would, Reid believes, “be a major breakthrough” and” take huge pressure off the most vulnerable and off health services”.
In summary, most countries have reported that their top priority will be to vaccinate those aged over 50 and then:
- Target those at high risk of contracting the virus (such as essential workers, disadvantaged socio-economic groups, those who can’t socially distance);
- Nursing home residents and staff; and
- All healthcare workers
Figure 2: Vaccine portfolio
Source: Deutsche Bank Research – The House View (updated 18 November 2020)
As the best vaccines will inevitably be in short supply, many advanced economies have started signing bilateral supply agreements with manufacturers, note Laboure and Reid. They estimate that the UK, US, Canada, Japan, the EU, and Australia will have secured enough diversified doses from leading candidates for their populations. “If the Oxford/AstraZeneca vaccine is successfully rolled out, the benefits would be distributed symmetrically across regions because most governments around the world have secured significant quantities,” they add (see Figure 2).
Cases of Covid-19 resumed their growth globally as most countries moved away from lockdowns in early June, but the extent of the virus’ impact with regard to the current infection process varies from country to country and region to region. Broadly, they can be summarised as follows (see Figure 3 and 4):
- Countries that have so far managed to bring down the infection rate sustainably and contain the first wave (e.g., China and Canada).
- Countries that continue to register a high growth rate of new daily infections and are still going through the first wave (e.g. Latin America, India, Russia and Africa).
- Countries that are experiencing a second wave with a rise of new infections after they had brought down daily infection rates for a longer time (e.g. Iran, Israel, the US, South Korea and Western Europe).
In their paper, Vaccines and more, (13 November) Deutsche Bank Research strategists Mallika Sachdeva and Bryant Xu point out that India and Indonesia have “secured large vaccine portfolios which could cover up to 80% of their populations if all the candidates’ are approved, and production and delivery are realised”. They note that India is also in a commanding position as the “pharmacy of the world” to produce vaccines, increasing the security of their access. And Indonesia “appears to have committed significant budget (nearly US$3bn) to vaccine procurement). But, they add, “These countries’ large populations and low numbers of physicians per million mean the logistics of administering the vaccine could remain challenging.”
In their view, the risk is that the divide between winners and losers from the virus in the region could actually widen with the vaccine - with countries that have handled the virus better, and also logistically and fiscally, more capable of vaccinating their populations widening the gulf.
“We are reaching this critical milestone in our vaccine development program at a time when the world needs it most”
Figure 3: Deaths per million have declined considerably
Source: Deutsche Bank Research – The House View (17 November 2020)
Figure 4: Cases per million are rising rapidly in the US and in Europe they continue to remain on an upward trajectory
Source: Deutsche Bank Research – The House View (17 November 2020)
Control and relaxation
France’s 65 million citizens are under stringent lockdown measures with no review before 1 December. People can only leave their homes for food shopping, medical appointments, pressing family reasons and to commute to work if the job cannot be done from home. Exercise is restricted to one hour a day carried out no further than one kilometre from home, and they have to carry a document to justify each outing.
And although Germany has recorded a relatively low death rate of just over 10,000 out of its 83 million inhabitants, Chancellor Angela Merkel announced a one-month partial lockdown from 2 November where non-essential travel is banned but schools and shops remain open. “We have to find a way to ensure we don’t fall into a national health emergency, but ensure the economy stays upright,” she said.10
In the UK a national lockdown was re-imposed from 5 November to 2 December with ministers reserving the right to extend it if the R number remains above 1.
However, in Sweden, dubbed the ‘Land of the mask-free’ by the Economist on 10 October, seems to have averted a second wave and its success with rapid large-scale testing and contact tracing to suppress outbreaks early has earned trust from its people. As the newspaper notes, “Sweden is a high-trust society, where people follow the rules. And yet its approach is based on the idea that, as Covid-19 is here for a long time, asking too much of people will lower compliance and thus spread the disease. Low-trust societies may need a different balance between coercion and self-policing but they, too, need sustainable rules.”11
The Southern Hemisphere offers an example of sacrifice ultimately rewarded. Melbourne, the city once at the epicentre of Australia’s Covid-19 epidemic during the winter is at last coming out of what was a strict lockdown to stem the outbreak. The winter months will show whether citizens elsewhere can match the Melburnians’ mettle.
Deutsche Bank Research publications referenced
Monthly Chartbook: The 2020 US election and 200 other charts…by Jim Reid (October 2020)
A quicker route back towards normality? Briefing from Jim Reid, (17 November 2020)
Everything We Know About a Covid-19 II, by Marion Leboure and Jim Reid, Deutsche Bank Research (9 November)
Exit Strategy Policy Tracker by Marion Laboure and Jim Reid (17 November 2020)
Asia Local Markets Weekly – the vaccine and Asia by Mallika Sachdeva and Bryant Xu ( 13 November 2020)
1 See flow’s End of the tunnel (27 March 2020) at flow.db.com
2 Monthly Chartbook: The 2020 US election and 200 other charts…Deutsche Bank Research (October 2020)
3 Everything We Know About a Covid-19 Vaccine II, Marion Laboure, Jim Reid, Deutsche Bank Research (9 November 2020)
4 See https://econ.st/32WrnSS at economist.com
5 See https://bit.ly/3PYeq1X at investors.modernatx.com
6 See on https://bloom.bg/2IG8ih5 at bloomberg.com
7 Everything We Know About a Covid-19 II (9 November), by Marion Leboure and Jim Reid, Deutsche Bank Research Vaccine II
8 COVID-19 dbDIG survey: The impact on households (8) – Lockdown Lite (12 November)
9 See https://bit.ly/36QwtkF at imf.org
10 See https://bit.ly/3kOlv4a at dw.com
11 See https://econ.st/32Wly7S at economist.com
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