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What will living with COVID for the long term mean in practice?

One question that increasingly comes up in client meetings is what living with COVID for the long term will entail. The truth is that there are many people that are better placed to answer this question than macroeconomists. But we are able to think through the implications for the economy.

Most scientists now believe that SARS-CoV-2, the virus that causes COVID-19, will become endemic – that is to say, it will continue to circulate within countries for years to come. From the point of view of the economy, however, the key point is one we’ve made several times before; the economic damage is caused by measures to curtail the spread of the virus rather than by the virus itself. So when we think about what living with COVID for the long term might look like, it’s important to keep in mind that any return to economic norms will require the need for occasional lockdowns to become obsolete. 

It is possible to envisage a world where the virus becomes endemic but lockdowns become a thing of the past if three conditions hold. The first is that a large majority of the population is vaccinated. The second is that those vaccines remain effective at limiting severe illness from COVID, and thus break the link between infections and hospitalisations/deaths. And the third is that, provided hospitalisations and deaths remain low, governments are willing to tolerate outbreaks of the virus in the community.  

If these conditions hold then we can learn to live with the virus without the need for lockdowns. Some countries may use “vaccine passports” to restrict access to services or events, but where this happens the objective is likely to be to incentivise the take-up of vaccines as much as it is to manage the spread of the virus. As things stand, these passports seem more likely to be used in Europe, where citizens are more accepting of an active role for government in everyday life, than in the US, where policies will vary between states and citizens are generally less accepting of government intervention. Meanwhile, international travel everywhere is likely to remain subject to greater restrictions and more bureaucracy compared to before the pandemic. And booster shots are likely to be required in all countries as the immunity provided by vaccines wears off – Israel has already administered these to almost half of its population aged over 60.

But all of this notwithstanding, if the three core conditions listed above continue to hold, living with COVID should not mean having to accept permanently lower levels of output. Economies should eventually return to their pre-virus paths of GDP. 

The problem comes if one of these conditions ceases to hold. In many emerging economies the challenge is to increase levels of vaccination. Vaccine programmes in several large EMs, including India, Indonesia, Russia and Brazil, have been slow to get going. (See Chart 1.) Most countries in Africa lag even further behind. In many cases (such as Africa and parts of Latin America) the problem is one of procurement and distribution. In Russia the barrier seems to be high levels of vaccine hesitancy.

Chart 1: First and Second Vaccine Doses Administered as a % of Total Population

Sources: Capital Economics, OurWorldInData

Low vaccination rates mean that these countries have yet to weaken the link between infections and hospitalisations/deaths, leaving them with little option but to respond to outbreaks of the virus by reintroducing new lockdown measures. This means that living with COVID does entail a hit to economic output in these countries. And the longer the hit to output persists, the greater the risk that the pandemic causes permanent economic scarring. This underlines the importance of accelerating vaccine rollout in those parts of the emerging world where it is currently low. 

In China, vaccination rates are high and the constraint instead is Beijing’s ‘zero COVID’ strategy. The government is unwilling to tolerate even low levels of the virus in the country – rather, its objective is to keep COVID out of China altogether. This approach requires the government to respond to new outbreaks of the virus by reimposing lockdowns in affected communities. This has been evident in the response to the spread of the Delta variant. Mass testing and quarantines are being implemented in places with confirmed infections, and restrictions have been imposed on travel within the country. This contrasts with the response to the Delta variant in other highly-vaccinated countries, which have continued to ease restrictions, and it is already starting to show up in the high-frequency activity data for China that we track. 

China’s strategy looks untenable in the long run if the virus becomes endemic. Other countries, such as Singapore, that had adopted a similar ‘zero COVID’ strategy have subsequently shifted to a more lenient approach. But unless or until China changes tack, the likelihood of new outbreaks will require the need for occasional lockdowns. And that in turn will prevent a full return to economic norms in some sectors such as leisure, hospitality and tourism.  

As things stand, developed economies look relatively well placed to live with COVID in the long run. Vaccination rates are either high or rising quickly, the vaccines themselves appear effective at preventing serious illness, and governments are therefore willing to tolerate some level of the virus in the community. 

The concern for these countries – and indeed the whole world – is that the virus mutates in a way that reduces the efficacy of vaccines. This would require either existing vaccines to be modified or, in the worst case, entirely new ones to be created. Vaccines that use mRNA technology, such as those from Pfizer/BioNTech and Moderna, may be easier to modify, putting those countries that have relied on them more heavily (such as the US) at an advantage compared to those that haven’t (such as the UK). But it would still take time to test, manufacture and roll out new vaccines, and in the meantime it would be difficult to avoid a return to widespread lockdowns. 

In truth, it’s impossible to know what living with COVID for the long term will look like. The exact approach will vary between countries depending on accepted norms and practices, and much will hinge on the evolution of the virus itself. The one thing we can say is that it’s possible to envisage a world in which the virus becomes endemic and economies stage a full recovery – but getting there rests on the continued effectiveness and widespread rollout of vaccines. 

In case you missed it:

  • Our Senior Markets Economist, Oliver Jones, asks whether the path of inflation priced into markets is realistic.
  • Our Chief Property Economist, Andrew Burrell, argues that commercial property markets in the world’s largest cities will underperform in the years ahead.
  • Our Senior US Property Economist, Matthew Pointon, asks whether the current house price boom in the US will be the last for several decades.