Economic Forecasts Turned ‘Upside Down’ by Vaccine News

The global economic outlook could materially change for the better following Monday’s promising results for a Covid-19 vaccine developed by Pfizer Inc. and BioNTech SE.

Less than a month ago, the International Monetary Funddowngraded its forecast for world growth in 2021, saying the recovery would be “long, uneven and uncertain.” Now, the possibility of a successful vaccine being manufactured and distributed as soon as early next year may warrant significant revisions to growth projections for as soon as the first quarter.

“This is a game changer, this is what we’ve been waiting for since March,” said Torsten Slok, chief economist at private-equity firm Apollo Global Management Inc. “Overall, this will turn all forecast spreadsheets upside down.”

U.S. stocks soared to records after Pfizer and BioNTech’s interim analysis showed that their vaccine prevented more than 90% of Covid-19 infections, the most encouraging scientific advance so far. The results still need to be cleared by the Food and Drug Administration, and it could take months or years to reach a meaningful percentage of the world population.

125,414 in FranceMost new cases today

+3% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23

-0.​8175 Change in U.S. treasury bond yield since Wuhan lockdown, Jan. 23

4.​7% Global GDP Tracker (annualized), Sept.


With Covid-19 infections surging at a record pace in the U.S. in recent weeks and several European countries instituting new lockdowns, the economy’s path still looks tough in the fourth quarter.

Even so, the hope for a vaccine in general has the potential to boost confidence among consumers and companies, which would support spending and hiring. For example, people could start booking vacations for the spring and summer, which would help related industries immediately, Slok said.

Read more: U.S. Recovery Loses Some Strength Amid Virus Surge, Cool Weather

About 27 million U.S. workers, representing some 22% of the nation’s workforce, are considered in close physical proximity occupations, according to Slok.

Shifting Expectations

Bank of England Chief Economist Andy Haldane also used the term “game changer” after Monday’s news and said a vaccine would “shift expectations very decisively among both people and companies.” That would reduce the concern that economies are heading into rolling lockdowns, where the virus resurfaces every time restrictions are lifted, forcing another lockdown and a cycle of stop-start uncertainty.

The prospect of a vaccine could have an impact on central bank decisions, as well as on potential government stimulus.

In the U.S., where lawmakers have been at odds over fiscal stimulus for months, the vaccine news could “put a damper on an outsize large fiscal package,” said Sam Bullard, senior economist at Wells Fargo Securities LLC.

Last week, Federal Reserve Chair Jerome Powell opened the door to a possibleshift in the central bank’s bond purchases in coming months, noting that asset purchases had been discussed at the Fed’s most recent meeting.

That said, if a rise in confidence produces a positive economic reaction in the form of increased hiring, capital spending or consumer purchases, the Fed may not feel the need to make that shift, Bullard said.

Some economists are taking a more cautious approach when it comes to updating their forecasts, mostly due to questions about how quickly vaccines can reach a meaningful number of people.

James Sweeney, chief economist at Credit Suisse Group AG, said he would need to “see the vaccine out and in place” before making a material change to his forecasts, while Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., said he’s waiting until he has a “much clearer idea of timing and rollout.”

“Let’s not forget we are still 10 million jobs behind, we still have a lot of catching up to do,” Slok said of the U.S. labor market. “The hole that we are in is still relatively deep. Even with the vaccine news, there’s still a long road ahead, it’s just a shorter road.”

— With assistance by Fergal O'Brien

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