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The virus still casts a shadow

Markets remain buoyed by central bank action and the prospects of a spending boom when economies open up. But Covid-19 continues to hit economies.

Markets remain buoyed by central bank action and the prospects of a spending boom when economies open up. But Covid-19 continues to hit economies.

Charles Stanley

in Features


US is getting back to normal, thanks to success in vaccinating a large number of people, in Europe social distancing, curfews and some lockdowns continue. This is a result of a combination of caution and, in some countries, less success in vaccinating quickly.

In Asia, a new surge in the disease has required new controls to be introduced. Japan awaits the start of the Olympic Games with ten highly-populated prefectures still in a state of emergency. This may be relaxed somewhat on 20 June, though there is caution about Tokyo and about Hokkaido and Okinawa with overstretched hospitals.

China is complaining about the democracies supplying vaccine to Taiwan, as the island battles to catch up with the need to vaccinate many more. Singapore keeps restrictions on social contact, whilst South Korea is now relaxing the controls on numbers attending events.

The state of the pandemic

Country                              Cases per million Deaths per million    Death rate of infected
Czechia 155,216 2,818 1.8%
USA 103,155 1,848 1.8%
Belgium 92,508 2,156 2.3%
France  87,733  1,689 1.9%
Hungary 83,745 3,105 3.7%
Brazil 81,566 2,282 2.8%
Italy 70,321 2,104 3.0%
UK 67,034 1,875 2.8%
Germany 44,315 1,077 2.4%
India 21,230 271 1.3%
Japan 6,147 112 1.8%
China 64 3 4.7%

Source:  Worldometer, 15 June 2021 (Listed in order of cases per million, main countries plus three other countries with high figures)

The biggest global problem comes from the upsurge in China. The port of Yantian in Shenzen is one of the world’s most important container ports, usually handling 100 huge container ships a week. The need to impose quarantine restrictions, new cleaning regimes and other protective measures has cut productivity and capacity substantially. This in turn has encouraged diversion of vessels to Shekou and Nansha, which now also have the problem of congestion to add to the need to protect against the spread of the virus. Yantian advertises delays of 14 days.

World shipping, which has still not properly recovered from the closure of the Suez Canal, now faces more delays and disruption from the world’s largest exporter of goods by container ship. The daily cost of a China-to-Europe 40-foot container has surged to more $11,000 this month.

The official figures show some reduction in the spread of the virus and record the success some countries have had in vaccinating, which serves to lower both the case rate and the death rate. The EU/EEA still tops the table for the number of deaths, at 730,000, followed by the US at 615,000 and Brazil at 488,000.

Total worldwide recorded deaths so far are 3.8 million from 176 million cases, a death rate of 2.1% of those with the disease. Only 2.2% of the world population have so far caught the virus, and the death rate for the whole population is 0.04%. The tables reveal that Hungary, Czechia and the Balkans have experienced a particularly tough time with cases and deaths. India has a low figure for both deaths and cases relative to the size of population, though there may be substantial undercounting particularly in the rural areas where health services are sparse. The official Chinese figures are very low but produce an unusually-high death rate in relation to case numbers (see table).

Markets positive

Markets remain buoyed by the large sums of money central banks have spent to prop asset markets, and now by anticipation of more spending from all of the involuntary savings that lockdown generated amongst the many people who received their regular pay but were unable to buy holidays, meals out and travel to the place of work. Economies seemed to adjust better to lockdown the second and third time round, both because the lockdowns are a bit less intense and because there is better adapted flexible working.

The issues ahead include how many businesses in areas such as hospitality, travel, leisure and entertainment are badly scarred? Will all those who lost substantial turnover and profit from lockdown and from social distancing cutting numbers be able to afford the back rent they did not pay, and the costs of gearing up again for more activity? How many balance sheets need recapitalising after months of negative cashflow? How many owners and entrepreneurs will decide it is too difficult to press on with so much debt and continuing limits on their business model from social distancing?

The general view that the power of the virus over us is waning is the most likely outcome. This scenario assumes that any changes to the virus do not defeat current vaccines. Progressive roll-out of the vaccines worldwide will limit the spread of the virus or its most virulent forms, and channel it more to the countries that are slow to vaccinate. This means the US recovery runs first and hottest, as most of the country is now unlocked. Europe will follow as vaccine roll out catches up.

We should remember that at current rates of vaccine production, and with current G7 pledges to help emerging economies, it is going to take a long time to vaccinate the rest of the world. The US and Europe will complete their roll outs this year and may decide they need a booster jab this winter.

The pessimistic case would see the virus mutate in a way which blunts existing vaccines, creates the need for a rejig of the vaccine and the re vaccination of the advanced countries. This would lead to more widespread lockdowns and a further blow to the world economy it could scarce afford. It would slow the task of vaccinating the rest of the world.

The more optimistic base case sees this week’s news of lifting restrictions as a further boost for a strong recovery. The figures show the US will be running hot, with the biggest inflation problem.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.


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