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Welcome To Covid’s Two-Speed World

International | Nov 17 2021

Authorities and analysts are taking a stab at estimating when the world's economies will reopen as economic pressure escalates.

-World to reopen despite spike in pandemic cases
-Focus shifts to covid management – the new big business
-Developing countries to lag by three years, barring a few notable exceptions
-Australia among the APAC leaders
-Uneven recovery across industries

By Sarah Mills

After accepting the long obvious – that a covid elimination strategy is not achievable – authorities and analysts are taking a stab at estimating when the world’s economies will reopen and at what might be the resulting economic growth.

Global economic pressures are rising as pandemic-driven supply-chain bottlenecks and stimulus-driven demand generate price inflation; and energy prices swing wildly.

This has been exacerbated by wage inflation as workers in many rich countries fail to return to work, while many in services and tourism-oriented industries have found work in other sectors.

Such trends are exacerbating issues in supply chains, which have to adapt to changed spending and work patterns.

The general consensus is that early re-openers will enjoy considerable economic gains. The Economist has been hinting for several months to a global reopening in early 2022; and there is little doubt that economic imperatives will force the situation.

“If normality does not return in 2022, the alternative is a painful economic adjustment,” opined the magazine’s Economics Editor Henry Curr earlier in November.

All this as covid cases continue to spike in many parts of the world

John Hopkins University data reveals covid cases are increasing despite more vaccinations and booster shots.

Covid cases are rising in the Upper Midwest and Southwest and Northeast regions of the US. Yet the US reopened borders in early November to double-jabbed visitors, suggesting it will enjoy strong early economic advantage.

Europe is also struggling to contain covid, but its reopening may be delayed.

Longview Economics analyst Brad Waddington reports that infections are continuing to rise in Europe despite high vaccination rates – not a good sign heading into winter. 

Waddington predicts this will pose a major problem for Europe unless it rapidly accelerates its booster program. Waddington attributes rising infection rates to easier restrictions, mobility levels at their highest since the pandemic began.

The data show the unvaccinated remain the most numerous of the newly infected, but infections among the vaccinated in Germany, fore example, have risen from 21% in September to 41% by mid-November.

Focus shifts to management

Longview’s data raise questions about vaccine efficacy. 

The World Health Organisation last year advised that vaccinations would not solve the world’s covid problems, shifting the focus to management..

Waddington attributes the problem to waning vaccine efficacy, which he says boosts the case for an acceleration of booster programs, and proposes reducing the minimum waiting time between shots from six months to three-to-four months.

China’s top infectious disease expert Zhang Wenhong has announced that mass vaccination has not been as effective as expected and is calling for enhancements; meanwhile, pharmaceutical companies are working on second-generation vaccines offering longer immunity and other solutions.

All this suggests the covid investment thesis will remain in play for at least the next two years.

Covid re-openings point to uneven recoveries

The International Monetary Fund, meanwhile, warns the global economic recovery will be grossly uneven, with poorer countries set to struggle. 

The IMF recently shaved Germany and United States’ forecasts to reflect supply chain issues; downgraded Japan and Asian as the spread of the delta variant increased restrictions; and increased forecasts for commodity producers in the Latin America and the Middle East, thanks to rising fuel and metal prices. 

Asia Pacific and Sub-Sahara the likely global laggards

The Economist reports recovery in Asia has been slow and is likely to lag the world.

The United Nations estimates GDP fell roughly -8.4% in South-East Asia in 2020.

The IMF predicts the emergence of a two-speed global economic, in which the rich world hits pre-pandemic levels in 2022, while the rest of world limps towards a break-even date of 2025.

Oxford Economics recently took a stab at estimating the reopening dates for Asia Pacific nations. Restrictions will vary, depending on vaccine progress; coronavirus prevalence; and economic constraints.

But until vaccinations reach 80% in the region, Oxford Economics expects a return to normalcy for the entire region is not expected until the first half of 2022.

Overall, the economists expect APAC GDP will rise by an average of 5.4% in 2022, followed by a 6.1% rise in services. Oxford Economics says that given the costs of lockdowns, the economic pressure to reopen is high and the authorities are likely to reopen as soon as possible.

It expects countries suffering stronger the economic impact of covid and tighter the restrictions, will most likely experience a strong GDP rebound and relaxation of limits.

Developed Asian markets should lead the way, and emerging markets are expected to lag given only 27% to 36% of the populations in Vietnam, Indonesia and the Philippines are fully vaccinated.

Scorecard ranks the field and Australia may bolt from the gate

The team at Oxford Economics has produced a scorecard ranking 14 Asia Pacific economies based on vaccination rates and case numbers, which predicts Malaysia, Australia and New Zealand will open first, yielding strong economic advantages.

Malaysia tops the chart, propelled by strong vaccinations and economic pain – the country tipping into recession in the September quarter, and gross domestic product (GDP) languishing -6% below pre-covid figures.

Korea, Japan and Singapore aren’t too far behind given high vaccination rates.

Japan, like Australia, has already relaxed limits on dining, recreation, retail and mobility. Singapore has already extended its vaccinated travel lane scheme, starting November 29.

Languishing near the bottom, tourism-dependent countries Thailand and Philippines will need to reopen soon as the economic costs mounts, but given low vaccination rates, this is likely to result in a reopening of international borders, while maintaining domestic restrictions.

The Economist reports that Thailand is experimenting with a sandbox concept wherein fully vaccinated tourists can lounge around on paradise islands where most residents are fully jabbed, two weeks after which, visitors are free to travel to the rest of the country. 

Although, given the rest of the population is not vaccinated, the mind boggles.

Other countries such as Vietnam are also considering adopting sandbox destinations.

Interestingly, despite China’s high vaccination and low case numbers Oxford Economics says the country can rely on the strength of its domestic economy and hold back on reopening, maintaining its zero-covid policy until the first half of 2022.

The Economist doubts China will reopen borders until 2023.

This is likely to have a knock-on effect in Thailand, given that by 2023, Chinese tourist numbers are forecast to still be at least -20% below 2019 levels, reports Oxford Economics.

Given India has very few restraints, its late reopening is virtually moot. The country is allowing fully vaccinated arrivals from 99 countries to travel quarantine-free in the country.

Vietnam is also at the lower end of the scorecard but is feeling less economic stress and can afford to delay reopening.

Thanks to its growing manufacturing base, GDP rose 2.9% according to the World Bank in 2020, possibly benefiting from re-domiciling out of China, and the bank forecasts a 4.8% expansion in 2021.

But the country needs to develop a strong service sector to leverage and consolidate these gains and continue to attract foreign manufacturers.

Industry by industry account

Re-openings will have a more pronounced affect on certain industries.

Services such as accommodation and dining are expected to be the big winners. 

While tourism should be a big winner, Oxford Economics does not expect international visitors will return to pre-pandemic levels until 2025.

In 2019, tourism funded 42m jobs in South-East Asia, according to The Economist – 13% of total employment and 12% of GDP.

Meanwhile, The Economist notes that wages in leisure and hospitality are soaring, after many workers found new lives in other occupations.

The aviation industry is likely to struggle.

The Economist sides with early pandemic bets that international travel will not recover to pre-covid levels before 2023 at the earliest, and most likely not until 2024.

The Economist reports that domestic travel in large countries has already recovered, with China surpassing pre-covid levels and America hot on its heels. 

The magazine also expects international leisure bookings will surge as restrictions fall, excluding the emergence of a more dangerous mutation, thanks to pent up demand.

But businesses are forecast to spend less on travel, some surveys suggesting budget cuts of -20% to -40%.

“The gloomiest prognosticators reckon half of all business travel could be gone for good,” says The Economist. “Many meetings and conferences will remain virtual, or at least take place in a hybrid form with far fewer people attending in person.”

Wealthy globetrotters will be the one exclusion to this trend, as demand for private-jet seats rockets. 

WingX, a private aviation data firm reports business jet activity jumped 70% in the first eight months of 2021, compared with 2020, a touch higher than pre-pandemic levels. 

This compares with standard commercial flights, which are still roughly -40% below pandemic levels.

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