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Economics & Markets

Vaccines the key variable for economic recovery in 2021

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney, Australia

Vaccine developments will be a critical driver of economic growth through 2021, along with stimulus and re-openings (which will themselves be dependent to a degree on vaccine success).

At the time of writing, there are seven vaccines deployed against COVID-19, five produced in the global west and one each from Russia and China. Before we become preoccupied with the logistics and politics surrounding the various vaccines and their implementation, we should pause and take stock of what a momentous achievement this is: with not one, but seven vaccines in the field less than twelve months on from the point at which the virus sparked a pandemic. Not only do we have a solution, we have competition and choice for governments as to the timing and direction of their own country’s path out of the pandemic.

It’s still early days, and there’s a lot we have to learn about these vaccines. Whilst we do know that most are extremely effective at preventing hospitalisations and death, it’s less clear whether they’ll stop us catching the disease – although they might well prevent us from passing it on.
There’s still debate in Australia as to whether this will be good enough, but if early indications from the UK and Israel are correct, from an economic point of view at least, the answers are very positive.

United Kingdom

Despite the ravages of the early stages of COVID-19 in countries such as Italy and Spain, the United Kingdom has been worst hit of all European nations over the course of the pandemic, ranking fourth world-wide in cases and fifth in deaths, at almost 120,000.1

In this dire context, the UK government, understandably eager to launch its vaccine program quickly and broadly, made the bold decision to give as many of its citizens as possible the first dose of the Pfizer and AstraZeneca vaccines, without necessarily ensuring that the second dose could be delivered in the recommended three weeks.

Effectively it’s a gamble that the short-term benefits to immunity will override any later waning of that immunity before second jabs become available. And while it has caused consternation amongst some in the medical profession1, it has already resulted in the vaccination of 15.5 million people – around 23% of the population - half a million of whom have also received a second dose3.

On the back of this progress, the Bank of England has forecast that the UK economy could return to pre-COVID levels by the beginning of next year4, with the first boost to consumption coming from older citizens emboldened by their immunity to go out and spend.


Israel (albeit serving a smaller population) is even further ahead. More than 40% of Israelis have received one dose of the Pfizer vaccine and 28% have received their second.5 Such high rates are allowing for sound comparisons between vaccinated and unvaccinated groups, and the results are striking. An analysis of more than 50,000 Israelis over the age of 60 (a group which is now 80% vaccinated) demonstrated lower rates of positive tests and hospitalisations in those who had been vaccinated.

Source: Maccabi Health Services Research Center / KI Institute, Deutsche Bank
Source: Maccabi Health Services Research Center / KI Institute, Deutsche Bank

This last point is important, and easy to lose sight of for Australians who have become accustomed to restrictions tightening at the first sign of COVID cases. Elsewhere, the concern is more commonly about the capacity of the public health system, and high occupancy of hospital (and in particular ICU) beds has become a signal to markets that lockdowns are on the way.

What implications does this have for Australia?

In general, the global roll-out is actually progressing more quickly than many might have expected in mid-2020. The issue is that it may not be the silver bullet some thought it would be, and that restrictions are likely to continue even after a large proportion of the population is vaccinated. Given the long lead time to prepare, there is every chance that the Australian rollout will be smooth sailing, progressing on time or even ahead of schedule, but also that the full re-opening of our borders and our economy may be some time further down the track.

On the upside, while potential setbacks in vaccine schedules might affect markets overseas, unless our local situation changes and we begin to record significantly higher case numbers on an ongoing basis, Australia should be more immune to short-term hiccups in our own program.

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Diana Mousina, Economist - Investment Strategy & Dynamic Markets
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While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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