Source: World Economic Forum
When COVID-19 first captured our attention in March of 2020, most of us could not have imagined that we would be looking at the possibility of working and schooling remotely eighteen months later or that fear of new variants might create a fourth wave of hospital admissions and an associated slow-down in the economy. Indeed, in some U.S. states the hospital systems have been stretched beyond capacity, with some on the verge of declaring a state of emergency.
In Canada, 38% of people polled expect the economy to be adversely affected by COVID for at least the next three years and 37% expect that our economy will not fully recover until 2023.
Canada’s views are, on average, consistent with most of the world but some countries have vastly different views. Amongst the most pessimistic are Russians and South Africans, where more than 60% of people believe that the adverse effects of the pandemic will extend into 2024 and beyond. The most optimistic country is China where 56% of people believe that we have already conquered the virus and only 3% believe that the economy will still be suffering the impacts of Covid-19 in three years.
In Canada, we still have moving expectations of when “things will return to normal”. For most people, normal means a return to schools and offices being open and no restrictions on crowds assembling without masks.
Early in the pandemic most prognosticators expected that we would be back to normal in “about a year”. With the approval of vaccines, expectations shifted, expecting a more rapid return to normal. We now realize that until we can vaccinate both children and adult members of the population, we cannot return to normal. With a large majority of our adult population now vaccinated, we are awaiting with much anxiety for the time that we can also vaccinate children. This will be done in two phases, likely those between 5 and 12 years old and those below 5 years old. The optimistic expectation is Q4 2021 for older children and Q1 2022 or beyond for young children. With this final group becoming eligible for vaccinations, we believe this will once again shorten the expectations of how long full economic recovery will take.
From an investment point of view, it is safe to assume that governments will be very reluctant to close economies again. With strong vaccination rates in most developed countries and the expected addition of children to the vaccinated, we should expect most economies to be trending stronger by the latter part of next year. Until then, governments will almost certainly provide liquidity to their respective economies to mitigate the economic damage, until the risks have eased. This may be longer than currently anticipated, as the table above shows that we have constantly been overly optimistic in our assessment of how long the pandemic would adversely affect global growth. We cannot forget that this is a global problem in a global economy. Although most of G-20 countries have strong vaccination programs in place, most of the world’s population lives in countries that have low vaccination levels. As a result, additional variants pose a risk to developed countries, as does the risk that continued health issues in developing countries slows the overall pace of recovery.
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