So, 2021 is ending as it began – with fears of the Covid-19 virus dominating. Although it has turned out to be a good year for equity investing in most places, based on a sharp recovery from the lockdown lows of 2020, the recovery has become more fitful and troubled by the lingering presence of the pandemic.
As the year draws to a close, the discussions are once again about how many new rules should be introduced in the advanced economies of the northern hemisphere to combat the latest mutation of the virus.
So far, we have seen Germany impose new travel bans, the Netherlands go for a lockdown until mid-January, and Denmark close concert halls, theatres and museums. The medical advice coming from the World Health Organisation and from national authorities is to redouble efforts to vaccinate as the best line of defence, but to supplement this with other measures.
The debate continues
Scientific advisers worrying about containing the virus usually recommend one-metre social distancing where possible, limits on meetings with others in enclosed spaces, mask wearing and frequent hand washing. They are sure the virus spreads through the air on people’s breath so the more social contact is avoided the less it will spread. All this makes gloomy reading for the millions who earn their living by running businesses that depend on social contact.
The South African experience with Omicron has been less devastating than feared.
At issue, as governments argue with themselves over what to do, is how serious an illness will Omicron usually create? Some think that whilst Omicron in its early stages will spread rapidly, it is likely to be milder than previous versions. Others think it could easily be as lethal as early versions of Covid-19, so they do not want to take more risk.
It is certainly true that cases of Covid-19 have picked up as winter advances, but so they did last year. The South African experience with Omicron has been less devastating than feared, though western advisers point out it is summer there. On the other hand, they also have a lower vaccination rate.
The European Union leads the grisly death table, with 877,000 deaths so far. It is followed by the US (827,000) and Brazil (617,000). Death rates have been very variable. The highest recorded on official figures is in Peru at 6,011 per million people, followed by Bulgaria at 4,378. The Balkans and parts of eastern Europe have very high figures, as do a few parts of Latin America. The US, at 2,478 deaths per million, is now high – with Belgium the highest western European country, at 2,392.
They cannot keep borrowing huge sums as offsets for a cessation of large amounts of economic activity.
Germany, which had much lower figures than other leading countries in the first wave, is having a worse time with this latest outbreak. The death rates hang as a heavy cloud over decision takers as they worry about how bad Omicron might prove.
Vaccination the key
It seems likely that the vaccines, which have now been widely rolled out in the advanced countries, will give many more people protection from a serious version of the disease, cutting hospital and death rates relative to cases. It also seems likely the main countries will wish to avoid a long and comprehensive lockdown – again given the economic damage that does.
They will also be conscious that they cannot keep borrowing huge sums as offsets for a cessation of large amounts of economic activity. The biggest worry seems to be the impact of mild versions of Omicron forcing health staff to stay at home impairing hospital capacity for people seriously ill with a range of conditions.
Our base case assumes that 2022 will see countries work out ways of living with the virus that fall short of banning most social contact businesses from trading. Meanwhile, there will be some damage to activity over December and January – which will add to the obvious signs of economic slowdown from the fast recovery rates earlier in 2021.
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