Most economic and trade forecasts assume there will be an effective COVID-19 vaccine. But what if there isn’t?

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As the global COVID-19 pandemic continues with its death toll, most economic and business forecasts assume there will be an effective vaccine against the virus, likely by the middle of next year.

But what if there isn’t?

If those predictions are wrong, everything from economic growth to stock and bond prices could be affected, say economists and market strategists. Industries that are already in difficulty could be permanently routed. Stock prices, especially in the United States, are expected to fall. Local government tax revenues could also suffer, as vacant housing increases and the value of commercial real estate falls.

A study from Imperial College London in the UK published this week found that COVID antibodies in infected people do not last very long, suggesting that long-lasting herd immunity – even with a vaccine – could not be achievable.

“It will be a disaster if it is the worst case scenario and there is no vaccine,” said Tony Frost, economist and associate professor at the Ivey School of Business at Western University.

“The economy will be like a WWII bomber returning to base. “What happened, and my god, look at all these holes,” Frost said.

Among the holes in the economy if there is no vaccine? The airline industry, restaurants, the corporate office market and hotels.

The flow of government support that supports struggling industries will eventually have to be shut down if no vaccine is found, said Pedro Antunes, chief economist at the Conference Board of Canada, an economic think tank.

“The markets seem to assume that there will be a vaccine. If we don’t have a vaccine, we will have to make some tough decisions, ”Antunes said, adding that public debt relative to the size of the economy has grown by around 10% in most major economies since September. start. of the pandemic. “We really can’t afford to keep the floodgates open on these brackets.”

The increase in the number of Canadians working from home would also have a negative impact on the commercial real estate industry, Antunes said. Empty offices would lower the prices of commercial rents and possibly the value of properties.

“A lot of these office workers won’t come back to offices even if there is a vaccine. But it would be exacerbated if there weren’t, ”Antunes said. “Every major city in Canada could end up being where Calgary is, with a huge glut of commercial real estate.”

This glut, in turn, would lead to less construction of new buildings, which would mean fewer construction jobs and less tax revenue for city governments, Antunes said. Falling property values ​​could also affect city budgets, Antunes added, as property taxes are based in part on property values.

Philip Petursson, chief investment strategist at Manulife Investment Management, is less concerned about what might happen if there is no vaccine. Petursson believes governments, businesses and citizens would find a way to keep the economy going.

“At some point, if there is no vaccine, I might see us take the Swedish approach,” said Petursson, referring to the Scandinavian country’s approach of maintaining most of its economy. open during the first wave of the pandemic.

Yet industries that are already struggling, like restaurants, hotels and airlines, could find themselves definitely smaller if there is no vaccine, said David Macdonald, senior economist at the Canadian Policy Center. alternatives.

“Right now, a lot of the government helpers are just freeze-drying industries exactly as they are until there is a vaccine. If there isn’t, at some point we would need to… rather reshape them for a world where COVID is rampant, ”Macdonald said. “For the airline industry, that would likely mean fewer flights and more expensive seats.”

And the pain would not be shared equally across the economic spectrum. The restaurant and hospitality industry, Macdonald pointed out, employs many low-income workers. Young workers entering the workforce during a recession have lower earning potential for the rest of their careers, Macdonald added.

“This has real potential to exacerbate income inequality,” Macdonald said.

In the stock market, stock prices at all levels could be set for a fall, veteran market strategist David Prince said.

“The market has forecast strong economic growth around the world by the middle of next year, and I just don’t think that will happen. I think it’s realistic in two or three years, even if there is a vaccine, ”said Prince, chairman of Harbinger Capital Markets.

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In Canada, the TSX Composite Index is back at 15,670 points. Although this was a loss of around 8% on the year, the TSX had fallen as low as 11,225 by the end of March during the first wave of the pandemic. In the United States, the Dow Jones industrial average is down about 6.6% year-on-year, while the S&P 500 is up 2.5% and the tech-dominated NASDAQ has climbed soaring 24%. All of these exchanges also performed strongly in 2019, with the TSX rising 19% last year.

Any growth that has come so far in the past two quarters is due to massive spending on assistance programs related to COVID, Prince argued.

“The recovery we have had is due to government spending,” Prince said. In the United States, which reported Thursday that its economy grew at an annualized rate of 33.1% in the third quarter, the Federal Reserve bought government bonds during the pandemic, Prince said.

“The Fed held $ 4 trillion in government bonds in March. It’s up to $ 7.2 trillion now. And the price of all the support packages and the quantitative easing that they do is probably going to add an additional $ 2 trillion, ”Prince said.

Stock prices are particularly vulnerable in the United States, where the disproportionate influence of tech companies means there are fewer tangible assets supporting stock value.

“With US stocks, only 20% of market value is tangible assets. It’s a downside risk, ”Prince said.

Even if there is a vaccine, it won’t necessarily be the medical and economic panacea that many people are hoping for.

“It’s not necessarily binary of will or there won’t be a vaccine. It is “will there be a vaccine?” How effective will it be? How long will it last? How many people will actually take it? Western’s Frost said.

The most likely scenario, said infectious disease specialist Dr Adbu Sharkawy, is that there will likely be several COVID vaccines available by next summer. But they might not produce the desired effect of protecting the entire population, he suggested.

“Nothing is guaranteed, of course. But there’s no evidence I’ve seen that suggests we won’t have at least one vaccine, but probably three or five by next summer. The biggest problem is whether it will be able to create herd immunity, ”said Sharkawy, an infectious disease specialist at the University Health Network in Toronto.

Yet even in the worst-case scenario without a vaccine, advancements in testing technology mean the economy might not be completely gloomy and grim, Sharkawy said.

“We don’t have reliable rapid tests yet. But once we figure it out, it would really make a difference for a lot of businesses, especially those that by their nature have a large number of people together. This would allow us to always keep parts of the economy open, even if COVID becomes rampant, ”Sharkawy said.

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