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Many factors may influence a vaccination programs success.
Across the Eurozone roll-out plans will lead to a greater
divergence in economic performance. Let's take a look at what we
are seeing acros the region.
Despite having its credibility on the line, the European
Commission's handling of COVID-19 vaccine procurement has drifted
from crisis to crisis and shows no signs of having a firm hand at
the tiller.
The European Commission's vaccination targets are achievable,
but the stop-start nature of some national vaccination strategies
injects substantial risks.
Diverging vaccination rates may lead to a two-speed Europe
developing, one in which some countries are able to reopen their
economies and ease COVID-19 containment measures gradually during
the late second and third quarters, while others stay mired in
healthcare crisis and lockdown.
The relative success in vaccine rollouts among countries could
also result in a higher divergence in eurozone countries' economic
performance, particularly during the second half of 2021.
The challenges faced are illustrated by uneven daily vaccination
rates across the EU bloc, with some countries having more supplies
that they can use effectively and others forced by logistical
bottlenecks to limit the number of new first dose administrations
given in favour of prioritising second doses. A defence for the
slow rollout which seeks to claim that EU vaccination campaigns are
not "a race for the largest numbers at the quickest speed" is
flimsy. The deployment of COVID-19 vaccine programs in the region
has always been about a numbers game.
The short-term objective set by European Commission of
vaccinating 80% of national populations over the age of 80 years
and 80% of healthcare workers by March 2021 is deliverable.
However, the stop-start nature of some national vaccination
strategies - characterised by uncertainty about the volumes of
vaccine that will be available next week or next month because of
ongoing disruption to manufacturing delivery schedules - mean that
the EU vaccination programme appears to the most observers to be at
risk.
Realistically, the eight-month mission objective appears to
already be in jeopardy in some countries. There is therefore a real
risk this could lead to a two-speed Europe developing, one in which
some countries are able to reopen their economies and ease COVID-19
containment measures gradually during the late second and third
quarters, while others stay mired in healthcare crisis and
lockdown.
The implication is that large-scale vaccination is probably
unlikely to result in a rapid return to "normal" for the EU. While
vaccination should gradually lead to decreases in deaths, probably
observable by in the second quarter, pressure on healthcare systems
is likely to remain intense until larger swathes of the population
can be immunised. As a result, some EU countries are bracing for
the prospect of maintaining longer phases of COVID-19 containment
measures and more months vaccinating.
Broadly speaking, the criteria for relaxing lockdown
restrictions will require continued falls in the average number of
secondary infections caused by a single infected COVID-19 case,
analysis showing declining death and hospitalisation rates from
COVID-19, and also no new major virus mutation in circulation,
evidence that vaccine rollout is beginning up speed and reduced
pressure on health systems.
The course that the COVID-19 pandemic takes in the EU is at this
point highly uncertain. The implementation risks for national
vaccination strategies are elevated and the prospects that the
European Commission can quickly restore confidence in its failing
vaccine procurement programme poor. Political infighting within the
EU and disputes with non-EU partners, such as the UK, are a
worrying signal of mounting criticism of the European Commission's
handling of the situation. If unchecked, this could also give an
opening to populist political parties to exploit in national
elections due in 2021.
Diverging vaccination rollouts likely to have an impact
on the pace of the economic recovery
The underwhelming start of the vaccination campaigns in most
eurozone countries, alongside the risks related to the vaccine
rollouts outlined above, also injects some uncertainty regarding
the expected economic rebound, particularly during the second half
of 2021. The relative success of vaccine rollouts among countries
could also result in a higher divergence in eurozone member states'
economic performance. The failure to successfully roll out
vaccinations may also have major implications for the sectors that
are being particularly hit by the pandemic, such as hospitality,
transport, and tourism. These sectors are also likely to be the
ones suffering more damage if restrictions will have to be
reintroduced at a later stage this year. On the other hand, they
are also the ones that are poised to gain the most once
restrictions are lifted, as long as the recovery does not occur too
late to avoid a large number of business failures in these
sectors.
Indeed, fiscal policy's effectiveness in limiting the negative
structural economic impact of the recession is likely to diminish
the longer the pandemic lasts. Although most eurozone governments
have pledged to keep supporting the economy for 'as long as it
takes', the strong fiscal support is unlikely to prevent a large
number of business failures, especially in the most affected
sectors. This effect has been delayed owing to several factors,
including tax deferrals, fiscal handouts, and insolvency filing
suspensions, but business failures are likely to pick up steam
during the second quarter of 2021.
It is also possible that the success or failure of vaccination
programs may have an impact on sentiment levels. A strong
acceleration in the number of vaccinations may lead to a
substantial improvement in sentiment. In turn, this could help
unleash some of the large build-up in savings that has been
accumulated during the pandemic. This would very likely drive a
strong pick-up in consumer spending and, at a lesser degree,
capital investment during the second half of 2021.
Posted 04 February 2021 by Diego Iscaro, Senior Economist, Europe Economics and