MBAER Bank - The Swiss Merchant Bank

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mBaer Necessities 04/2021

In science we trust ...

... but vaccines and lockdowns won't end the pandemic soon

For the second time in the history of Sächsilüüte, Zurich's traditional spring festival, the event was cancelled due to the pandemic, and the Böögg  burned on the Devil’s Bridge in Canton Uri. However, bar and restaurant terraces on the Sechseläutenplatz were open and welcomed their first guests after a four-month closure, as the Swiss government decided to allow outdoor tables in restaurants and bars as of April 19.

Other countries are tackling the pandemic differently, reflecting how populations and governments perceive the emergency and the extent to which they are containing the disease and its economic fallout.

Germany, for instance, has recently imposed some of the toughest lockdown measures so far and German citizens may be facing a much longer shutdown, as the new federal measures could last until the end of May or mid-June.

The wrong question: in which country would I live?

Choosing the indicators to evaluate countries' success and failures in handling the pandemic is ultimately a personal decision, depending on individuals' values and beliefs.

Spirited debates about the "facts" occur even between experts and not only between experts and lay people. Numbers, models and predictions are also changing rapidly with evolving data, as in any emergency, contributing to the mistrust in the scientific and in the public health advice.

The least uncontroversial economic fact is that 2020 global recession was brutal and unprecedented, but it could have been a lot worse without the massive support of governments and central banks. Despite the extraordinary policy support, some sectors and group of workers have been permanently damaged and won't recover from the crisis.

This month, the IMF said that it expects the world economy to grow 6% in 2021 and 4.4% in 2022. Crucially, the IMF based its forecasts on the race between the virus and the vaccines, "[…] a way out of this health and economic crisis is increasingly visible" Gita Gopinath, the IMF's chief economist, said.

Economics is a science, but economists are not virologist. So, we think the IMF forecasts may turn out to be wrong and strongly overestimate the growth for this year and the next one.

The right answer: vaccination and lockdowns

Statistics published by the Johns Hopkins University (Fig. 1) show that vaccines are effective in reducing the new confirmed Covid cases. Authoritative scientific research shows that lockdowns have effectively reduced Covid transmission.

All currently approved vaccines are highly effective at preventing serious illness, hospitalization and deaths. The technology behind some of the vaccines (mRNA) has earned the Nobel Prize and is well understood and established.

immunity – when the share of people still susceptible to infection is so small that the disease can no longer spread.

Fig 1: A Race between Virus and Vaccines

(Per thousand, seven-day moving average)

Virus and Vacines

Virus and Vacines

Sources: Johns Hopkins University COVID-19 statistics ; IMF WEO

We now know that various mutations of the virus - British, South African, Brazilian and Indian - are spreading rapidly and threaten to send entire countries back into lockdown.

Ideally, the best and most immediate way to combat the threat of emerging variants and therefore to aim at eradicating the virus is to vaccinate as many people as possible.

Eradicating the virus is a beautiful dream but most scientists think it is improbable. A Nature survey in January shows that about 90% of the scientists working on the coronavirus think that the coronavirus will become endemic — meaning that it will continue to circulate in pockets of the global population for years to come. Therefore, we may have to live an endemic future, with occasional lockdowns, masks and social distancing to control the epidemic. Lockdowns are limitations to freedom, but civil libertarians should concede that such measures are justified in these rare and extreme circumstances.

And, with lockdowns, firms will close again and we have another decrease in production. The hope is that we can do it relatively smoothly, as we learned that each lockdown hurts the economy less than the previous one.

The global economy is still healing and the IMF's growth forecasts for 2021-22 may turn out to be wrong. Vaccines and public health advice will help keeping the pandemic under control. Of one thing, we can be sure: we should expect a lovely summer weather this year, according to the Böögg.

Francesco Mandalà, PhD

Head Portfolio Management


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