The surging delta variant brings new uncertainty to the economic recovery, experts warn

0 11

Traders at the New York Stock Exchange.

Source: NYSE

LONDON — The rapid spread of the delta Covid-19 variant has clouded the growth outlook, strategists are warning, but it’s too soon to tell whether markets will weather the storm.

France, the Netherlands and Spain all announced new restrictions on Monday in a bid to curb surging cases of the highly-transmissible variant, while the U.K. has committed to taking a leap of faith and lifting its final phase of restrictions on July 19, despite rising cases.

In a research note Monday, Oxford Economics highlighted that while global Covid cases remain relatively low, the number of economies reporting sequences of the delta variant had climbed to 89, with a growing number now identifying it as the dominant strain. It has been detected in more than 100 countries.

Oxford Economics Director of Global Macro Research Ben May said market concerns about the impact of the variant on the global economy were “warranted,” warning that vaccines alone would not ensure a smooth path to economic normalcy.

May said the sharp rise seen in the U.K., where the pace of the vaccine rollout has been a renowned success, could indicate that the new strain will “wreak havoc” on emerging market economies with less advanced inoculation programs.

However, he suggested that given the relatively low hospitalization rate, “exit waves” may be a “necessary evil” for economies planning to reopen without the majority of the population having full vaccine protection.

“Nonetheless if economies reopen and allow cases to surge, the economic gains could prove illusory if Covid-related absences trigger major disruption to businesses and higher cases prompt greater voluntary social distancing,” May added.

“Ongoing developments in the U.K. could provide more insight into this risk. But for now, the evidence is inconclusive.”

More mutations, dwindling data

Barclays Head of Economics Research Christian Keller also acknowledged that developments surrounding the variant instilled new uncertainties around the path to economic normalization.

“This comes with incoming data surprising on the downside, indicating that U.S. growth has peaked and that activity in China decelerated more than intended,” he added.

He noted that in the U.S., the geographical disconnect in the vaccine rollout poses unique challenges which could also have international ramifications for the economy and markets.

“Although vaccination rates are high for the U.S. average, they remain very low in many southern and mid-western states, implying that hospitalisation and death rates in those regions could indeed rise significantly,” Keller said.

“A more general concern is also that soaring infection rates, even if not deadly, could spur the emergence of ever new variants which eventually become more resistant to existing vaccines. India reports a ‘delta+ variant of the variant’ and Peru’s new ‘lambda’ variant has also been flagged by the WHO.”

Even if such mutations did not raise death or hospitalization rates significantly, they could affect consumer confidence and thus private demand, and labor supply, he suggested.

However, Barclays emphasized that even if the acceleration for global growth ends here, it should remain robust. Keller also highlighted that policymakers are taking note of the renewed risks, with China’s central bank cutting its reserve requirements, and Barclays expects other central banks to consider hawkish tilts.

‘Significant scope for recovery’

JPMorgan analysts in a note Monday suggested that the relative pullback for “reopening” stocks in recent months, and the dwindling hospitalization numbers in the U.K., indicate that the market may be well placed to weather the storm if the delta surge does inflict greater macroeconomic damage than first anticipated.

“Even if the restrictions return, this might not be much of a surprise to the market, as the reopening plays have significantly lagged in the past months, in effect already discounting lower levels of mobility,” said Head of Global and European Equity Strategy Mislav Matejka.

Matejka added that “the earnings hurdle rate is far from demanding,” with consensus projecting that the earnings per share of stocks linked to consumer reopening in 2022 will still be as much as 30% below pre-COVID-19 levels.

This is in contrast to the broader market that will be ahead by 15%, which Matejka said offers “significant scope for recovery.”

Read original article here

Denial of responsibility! Swift Telecast is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – [email protected]. The content will be deleted within 24 hours.

Leave A Reply

Your email address will not be published.