Financial markets are hoping for a vaccine to be rolled out to a significant portion of the population by mid next year. No doubt there would be some bad news if that wasn’t the case, but it wouldn’t spell the end of recovery hopes.
Among the many things that have influenced markets this year, hopes of COVID-19 containment and good news on the vaccine front are significant factors. As such, it’s reasonable to assume that if a COVID-19 vaccine didn’t begin rollout by mid-next year, it would be felt by markets – and Australia would be no exception.
It’s our base case that a vaccine will be developed and have begun rollout by then, but it’s also worth noting that should it not eventuate, Australia will not lose hope of recovery. Examples why include:
1. Governments have learnt how to keep economies ticking: As second waves have occurred, governments in the developed world have developed more localised mobility restrictions. This tells us that governments are learning how to live with the virus and keep economies breathing. As such, our forecasts assume that another worldwide stringent lockdown on the scale that occurred in March is unlikely. Instead, governments would opt for localised mobility restrictions (if required) along with some ongoing limitations around domestic and international travel.
2. Mortality rates are (generally) lower in developed nations’ second waves: Australia is an unfortunate exception to this, given the situation in Victoria. However, in general, mortality rates during the second wave of COVID-19 have been lower, indicating a better understanding at the medical and community level of how to manage the virus and protect the more vulnerable.
3. We have learnt to live with other deadly viruses: No vaccine eventuated for SARS and MERS, for example. While COVID-19 is gripping the world in a way these viruses didn’t, the point remains that societies are capable of finding ways to suppress and manage viruses, including through improved testing and therapeutic treatments.
Some things to consider also if a vaccine is developed:
1. Vaccine scepticism: This has also surrounded the take-up of a vaccine by the population. However, a survey from Goldman Sachs shows that there is large proportion (over 50%) of the population in the US, France, the EU, the UK, German and Italy that would take a vaccine.
2. Changing forecasts: If a vaccine is available for a larger share of the population in 2021, then we expect this would bring some upside risks to our forecasts.
3. Concerns around a ‘fast’ vaccine’: There is concern that a fast-tracked vaccine has not met the same regulatory approvals and might be less ‘safe’ without the history to show any long-term side-effects. The length of the immune response of a potential vaccine is also being questioned. These are valid concerns. But the current state of play in vaccine development also offers a lot of reasons for optimism. There are currently 10 vaccines in Phase 3 of development, which is the stage that is tested on a large sample before it can receive government approval.
If there was no hope of a vaccine rollout, despite decent evidence suggesting a vaccine will arrive next year, it would not be good news. But, it won’t mean that Australia is forever stuck in a holding pattern of lockdown and suppression – history shows us that we can learn to live with even the most deadly of viruses.
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