The world entered the crisis associated with the covid-19 pandemic suddenly and as a whole. The exit is proving, instead, slow and staggered, with an uneven economic recovery. On the way out of the pandemic (pandexit) the deployment of the vaccination process is of crucial importance.
More vaccination leads to fewer infections, more loosening of restrictions and more economic growth, as the Bank for International Settlements (BIS) exposes in its 2021 Annual Economic Report. But vaccination alone may not be enough. It would have to be complemented with better treatment protocols, which would lead to a more agile reopening of economies, would sustain employment and boost world growth.
The global recovery is advancing – and it looks to continue to do so – at different speeds, led by the United States and China, followed by several advanced economies. These countries are recovering more vigorously than expected.
This is partly due to the fact that the pandemic risk has decreased in some countries thanks to the rapid deployment of the vaccination process or, also, to the effectiveness of measures to prevent infections, such as better testing and tracking of transmission chains. Rapid growth in major economies often ends up having a positive impact on the rest of the world.
However, many emerging market economies (EMEs) are lagging behind in their response to the virus. Several of these countries, whose economies and populations are more vulnerable, could face challenges as the pandemic in the rest of the world wears off. If growth and vaccination rates in the major economies exceed expectations, EMEs could face a double challenge: one, more infections, and, two, stricter financing conditions that make paying interest on their debt more expensive.
Economists rarely prescribe remedies for a public health crisis. But, in the case of the covid-19 pandemic, the fate of the world economy is directly linked to health policy. For this reason, the BIS carried out an analysis of alternative strategies for pandexit in its Annual Economic Report.
A more widespread economic recovery depends on all countries reopening quickly and safely, for which vaccination is vital. Measures to accelerate the production and distribution of vaccines more equitably between countries, exemplified in the recent G-7 commitment, must be intensified.
Vaccines pay for themselves, as colleagues from other multilateral agencies have emphasized. The International Monetary Fund estimates that a $ 50 billion investment in vaccines would increase global economic output by about $ 9 trillion by 2025.
However, relying solely on vaccination is not enough.
Vaccine supplies are still limited and herd immunity will take time to achieve in most countries. At the current rate, half the world’s population would not receive even a first dose before the end of the year. The virus will not stop mutating and could develop resistance to current vaccines, and developing and producing new ones would take time.
More effective treatments can significantly enhance the vaccination process. The BIS analysis indicates that if, through more effective treatments, the fatality rate is reduced by half, the opening of economies could accelerate even if the vaccination rate is a third slower than it is today. This would certainly accelerate the recovery of lost GDP.
Better treatment would also be needed if the disease is not eradicated and ends up becoming endemic, like the flu, which many consider most likely. If so, the benefits of allocating resources today to these efforts would be even greater.
New treatments are being investigated, with clinical trials of novel therapies and notable investments in many countries, the United States among others. Some of these treatments could turn things around, so the time to prepare to apply them as soon as they become available is now. The costs incurred will likely pale in comparison to alternatives such as intermittent lockdowns or death.
International cooperation is essential. A successful vaccination program that reached the entire world would yield much greater returns on a global scale than if countries relied solely on their own resources. With it, everyone would benefit from the boost to trade and the reduction of cross-border infections.
In the longer term, to secure a lasting recovery, it would be necessary to withdraw the extraordinary fiscal and monetary support that governments and central banks are providing. Unlike the vaccination campaign, this policy standardization process is a marathon, not a sprint. Policymakers will also have to make strategic decisions to reallocate support and address the long-term consequences of the pandemic, especially its impact on patterns of economic activity. Structural reforms that foster a vibrant, flexible and competitive economy are essential in this regard.
Agustin Carstens He is the CEO of the Bank for International Settlements (BIS).