Home >Economy >Covid-19 vaccinations boost the global economy, but may not cure it alone

The global recovery is slowing as Covid-19 resurges, spurring governments to try to raise vaccination rates in hopes of fueling stronger economic growth.

The thinking is, first, that vaccinations will ease consumers’ worries about infection, prompting them to spend more on travel, dining out, going to concerts and other activities that involve proximity to other people. Second, reduced Covid-19 case counts would mean fewer government shutdowns of ports, factories and other operations critical to global supply chains.

However, it isn’t clear that higher vaccination rates alone will do the trick. In Europe, growth has surged as rates have climbed this year. But in the U.S., economic activity slowed notably through the summer as the Delta variant of the virus spread, despite rising inoculation rates.

This suggests that other factors are at work in different economies, and therefore the right mix of policies needed to keep the recovery going may vary from place to place. Still, many economists say they think higher vaccination rates would help extend the recent period of strong output growth through next year.

“All indications are that [Covid-19 is] going to become endemic, but the hope is that it can be managed through vaccines," said Flavio Toxvaerd, an economic epidemiologist at the University of Cambridge. “The practical policy at this point, given the low cost, really should be to get as many people vaccinated as possible."

Many policy makers are trying. In August, France required people visiting bars, restaurants and other venues to have a negative result from a recent test for Covid-19 or proof of vaccination—a so-called vaccine passport.

Although the measure was primarily intended to reduce deaths and serious illness, President Emmanuel Macron explicitly tied it to an economic goal when announcing it in July. “This summer will be a summer of economic recovery," he said.

In the U.S., President Biden recently announced that all employers with 100 or more employees would have to require that their workers be vaccinated or undergo at least weekly Covid-19 testing.

Italy’s government said Thursday that it would require all workers to have a digital certificate showing they have been fully vaccinated, have recently recovered from Covid-19 or have freshly tested negative for the virus.

It is too early to know whether these measures will boost growth as governments hope.

In France, the vaccine passport appears to have increased vaccination rates among young people. But an August survey of purchasing managers recorded a decline in activity among service providers as customers unenthusiastic about vaccines decided to eat and entertain themselves at home.

In the U.K., where vaccination rates are higher than in the U.S., economic growth cooled in July to just 0.1%. While it is risky to draw firm conclusions from one month’s data, the slowdown suggests that high vaccination rates alone may not be sufficient to drive a rapid recovery.

August surveys of purchasing managers at businesses around the world recorded the slowest increase in activity since February, and it seems likely that the preliminary September results due this coming Thursday will record a further deceleration.

Barometers of future activity, such as the Organization for Economic Cooperation and Development’s leading indicators, point to further cooling in the months ahead.

“Covid is by no means over and it is going to be disruptive to growth," said Marchel Alexandrovich, an economist at Jefferies Group.

Delta’s chilling effect on services spending is a major concern for nearly all developed economies, particularly those most dependent on tourism. The virus’s disruptions to manufacturing and shipping, particularly in Asia, are hurting exporters and retailers around the world.

Many economists believe the drag from the virus and supply bottlenecks will ease from early 2022, in part because of continued vaccination. Economists at BNP Paribas on Wednesday lowered their 2021 U.S. economic growth forecast to 6% from 6.9%, and their China forecast to 8.2% from 8.7%. But they raised their 2022 U.S. forecast to 5.3% from 4.7%, and their China forecast to 5.6% from 5.3%. In essence, they see the Delta variant as a speed bump rather than something that will derail the recovery.

In many countries, the pace of vaccination has slowed over recent months. Earlier this year, it was mostly a matter of availability and logistics because many more people wanted the shot than there were vaccines available. Now, in many places, the pace has ebbed with demand.

A new challenge in countries that have already vaccinated a large share of their population will likely be persuading the vaccinated to get a booster shot to reinforce protection over a potentially difficult winter.

Success on either front will boost economic growth, European Central Bank President Christine Lagarde said recently.

“Clearly, if the pandemic is resolved faster because of even further vaccination coverage and if the booster is adopted by many, that is going to be an add-on," she said.

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