Head of Global Economics
BofA Global Research
Will a Vaccine Cure the Economy?
The race to find a vaccine has reached fever-pitch in recent weeks, with preliminary data from vaccine development raising hopes that one could be available as early as the first quarter of next year. For now, we’re sticking to our assumption that it will take until the third quarter of 2021 before a vaccine is available en masse in the developed world, with a lagged rollout in much of the emerging markets.
That said, we think the news is encouraging enough to treat a first-quarter vaccine release as a ‘realistic optimistic scenario’. What would a six-month earlier rollout mean for the U.S. and global economies?
Many commentators view an early vaccine as a game-changer for economic growth. We think it’ll be more like a “performance enhancer”, adding about 70 basis points to our current 5.6% global economic growth forecast for 2021.
A game changer would have been a miracle cure or vaccine in the Spring, which would have shortened the shutdown and avoided the grave wounds the coronavirus has inflicted on businesses. But now that the economy has fallen into a deep hole, we will need to contend with the headwinds that come from damage to confidence and balance sheets, and cancelled investment plans, not to mention wealth destruction and unemployment.
Michelle Meyer, our Head of U.S. Economics, explains that the upside of getting an early vaccine–in addition to the obvious health benefits–could be a boost to consumer spending, especially in ‘experience’-based services like travel. Yet only time will tell whether people will spend additional money on these services, or simply shift their spending away from the durable goods they’re already buying.
Michelle also points out that about 21% of U.S. small businesses still have their doors closed, according to Homebase, and others have downsized. An early vaccine isn’t going to instantly turn a switch on and bring these businesses back overnight.
Then there’s the question of what happens to the U.S. economy between now and the time the vaccine arrives. We assumed that a stimulus package of about $1.5 trillion would be enacted in late July. But negotiations failed, prompting President Trump to sign four executive orders on stimulus. There are significant hurdles to implement these orders. Until they go into effect, or another stimulus package is passed, we will see a $16 billion-a-week reduction in unemployed insurance. That adds up to $64 billion of lost additional income in August.
Everyone wants to see a vaccine developed and available as early as possible, but getting one in the first quarter of next year doesn’t cure the pain of unemployment today, or change the fact that states and local governments need fiscal support. And as we see it, getting a vaccine six months ahead of our expectations won’t be a miracle cure for the economy.
Please visit our Global Macro Snapshot webpage weekly for our latest insights.
- The $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law by President Trump on March 27, 2020.
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