Newsletter: Vaccines: an intense economic rebound is around the corner

Newsletter: Vaccines: an intense economic rebound is around the corner

Monday, 23 November 2020

Funcas Europe

Good morning Future is blue readers,

This week we are talking about the coveted COVID-19 vaccine. Recent news on different trials showing effectivity of about 90% are understandably generating huge expectations for the recovery of our lives and pockets.

You can read below some reflections on the impact that vaccines will have on the economy.

Further below, as usual, you can see what we are reading these days.

An economic turning point within hand’s reach

Arguably, 2021 will be the year of global vaccination. What impact should the coveted vaccine have on the world economy?

If the positive results are confirmed, this would represent a turning point in the economic forecasts.

The economic sectors that would benefit the most from the easing of social and travelling restrictions are tourism and other sectors that greatly depend on mobility. For Spain, considering how key these industries are and how our economy has traditionally reacted to global recoveries, we can say with confidence that an intense rebound is around the corner.

We expect a confidence boost when citizens will perceive a relaxation of the measures limiting their freedoms. Spanish families have a considerable spending capacity thanks to around 80 billion euros that have been saved out of precaution.

The economic benefits of a vaccine can be inferred by looking at countries which have already managed to contain the pandemic, such as Finland, Japan, South Korea and New Zealand. In these countries, consumer confidence has improved markedly, thereby boosting economic recovery (see graph).

However, before private spending restarts at full speed we’ll need to wait until the actual vaccination campaign starts and a credible vaccination calendar for everyone is on the table. Epidemiologists consider that at least 70% of the population should be covered in order to contain the pandemic.

We should also keep in mind that contrary to the rebound effect in private spending, there won’t be a similar confidence push among businesses. Balance sheets are very damaged due to the abrupt income drop. According to the ECB, one out of six companies is over-indebted. Many businesses will need to wait to balance their books before they consider new investment – if they actually make it to stay open after this dramatic 2020.

What we are reading

The impact of the new Asian trade mega-deal on the European Union
Although the economic implications of the Regional Comprehensive Economic Partnership (RCEP) for the EU are modest, the geopolitical and strategic implications are not, argues this Bruegel publication.

Here’s a credible plan to soften Covid’s catastrophic job losses
“Although the EU and its member governments reacted to the corona crisis with laudable speed and determination, much more than that will be needed to stave off the impact of company closures and job losses that are already under way”, says Gilles Merritt, founder of Friends of Europe think tank. 

President Biden: Good for Europe, but not a miracle-worker
“Europeans should not be tempted to act as if Trump’s Presidency never happened and they have the luxury of being able to do nothing. They should invest in strengthening their capacity to protect their own interests, whoever sits in the White House.”

A UK-EU deal is needed for Northern Ireland
“I profoundly believe that we need to find a deal on the future relationship for the good of Northern Ireland, and the UK’s relations with our most intertwined neighbour, Ireland”, argues Julian King, former UK Commissioner.

Have a nice week!

Raymond Torres
Funcas Europe Director


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