key: cord-0061514-9l9m8e53
authors: nan
title: Vaccine optimism reduces EM risks
date: 2021-01-26
journal: nan
DOI: 10.1111/1468-0319.12533
sha: 5103e8838fa5e4faacbcf80eb14ddc8ce0fc4c5d
doc_id: 61514
cord_uid: 9l9m8e53

▀ The positive developments on Covid‐19 vaccines are broadly in line with our baseline forecast for emerging markets – we expect a noticeable impact from mass vaccination programs from around mid‐2021. Our in‐house survey reveals the news has reduced downside risks for 2021 for the great majority of EMs. ▀ But vaccines programs will diverge significantly across EMs. Apart from China and Russia, which are developing their own vaccines, Chile tops the EM league for pre‐ordered doses, at more than twice the population (Figure 1). Other EMs have also secured access to large quantities. But many will fall short of inoculating even 30% of their populations, which may force governments to maintain contact and mobility restrictions to contain the pandemic. ▀ Over time, the global COVAX facility should ensure access to vaccines for countries missing in the initial ordering race, though its starting supply is scarce and re‐deployment of excess doses will be protracted. Domestic distribution will also be drawn‐out in many geographies, stymied by poor infrastructure, including intermittent access to power. ▀ Meanwhile, vaccine progress in advanced economies and buoyant global financial markets should support demand. Consequently, prospects will be brighter for countries that saw large recessions last year and can implement vaccination programs swiftly – Eastern Europe and Mexico fall in this group – though the outlook for tourism will remain challenging.

 Over time, the global COVAX facility should ensure access to vaccines for countries missing in the initial ordering race, though its starting supply is scarce and re-deployment of excess doses will be protracted. Domestic distribution will also be drawn-out in many geographies, stymied by poor infrastructure, including intermittent access to power.  Meanwhile, vaccine progress in advanced economies and buoyant global financial markets should support demand. Consequently, prospects will be brighter for countries that saw large recessions last year and can implement vaccination programs swiftly -Eastern Europe and Mexico fall in this groupthough the outlook for tourism will remain challenging. 

Source: Oxford Economics/Duke Global Health Innovation Centre * Assumes two doses for all vaccines ** Tally may not reflect all pre-sales agreements

Conditional on regulatory approval, the initial supplies of Covid-19 vaccines may reach some Emerging Markets (Ems) in Q1 2021. However, in most EMs mass immunisation programmes are likely months away, leaving large populations without access to the vaccine until at least mid-2021. Specifically, none of the companies currently part of COVAX, nor China or Russia, which account for a large proportion of EM pre-orders, have had their vaccines authorised by regulators. This is in line with our current EM macro forecasts, which assume activity only picks up more visibly once a vaccine becomes widely available, allowing unwinding of containment measures. Consequently, we expect ex-China EM GDP to return to its pre-crisis peak only at the end of 2021 (Figure 2 ). In the short-term, the disruption from the pandemic will continue, with restrictions limiting consumer spending on both local and travel-related services. In some places (CEE, Turkey, Russia), resurgent Covid-19 is keeping people at home -Google mobility data pointed to a fallback in footfall towards the end of 2020 (Figure 3) .

over the global economy, as illustrated by our recent inhouse poll. We asked our economists what impact recent developments (vaccine news, US election outcome, and China demand dynamics) will have on our country forecasts. According to the results, the vaccine breakthrough implies less headline risk for the EM outlook (Figure 4) , while China's resilience is also seen as reducing risks. What's more, although most EMs will trail advanced economies in the vaccine rollout, delaying meaningful relaxation of social distancing rules, the rebound in activity in advanced economies may spillover into EMs. In particular, commodity producers, Asian exporters, and CEE countries look wellpositioned to gain from strengthening external demand. Meanwhile the reactivation of travel may also facilitate a better tourism season for some countries.

According to a recent study by IPSOS conducted across 15 countries, EM populations display a high willingness to get vaccinated ( Figure 5) . The level ranges from 68% in South Africa to 87% in India but declined in the latter part of 2020. As the vaccine is unlikely to be mandatory, a lack of trust in its efficacy, concerns over side effects, or scepticism over the virus may scupper efforts to control the pandemic in some countries. 

We have identified the following cross-region/country trends: EM Asia will rely on a diverse supply of vaccines -including from China, once approved -and only cautiously ease social distancing measures. Some countries are working on (Vietnam) or planning to have (Malaysia) domestically produced vaccines. India and Thailand have teamed up with Oxford/Astra Zeneca to manufacture its vaccine locally, while some supply will be sourced through COVAX. India faces a big distribution challenge, but we estimate it may still be able to vaccinate up to 10% of its population in Q1.

Latin America's governments have pro-actively secured supply, so vaccination programs for priority groups could begin in January. Aside from outsize coverage in Chile, Peru and Mexico have secured enough to vaccinate large proportions of their populations in 2021. This will reduce the need for social distancing in cities and holiday destinations possibly from Q2 2021. Consequently, our GDP outlook sees a 5.4% rebound in the region's economy in 2021. Mexico and the Caribbean stand to benefit most from a recovery in tourism.

EM Europe will likely lead the EMs benefitting from EU procurement (CEE) and a local vaccine (Russia). The improving macro situation in Germany and the rest of Europe will also boost short-term prospects for CEE exports. Turkey, which is grappling with a severe second wave of the pandemic (Figure 6) , has its own vaccine in the works but plans to start off its vaccination program in Q1.

Middle East purchases are unclear -in the GCC only Kuwait has disclosed its orders, while Qatar pledged to buy 'in the largest quantity available'. No delivery details are available, but GCC countries appear well-placed for early vaccination programs and high coverage.

Africa will have limited early access to vaccines, and even two of the continent's largest economies, Egypt and South Africa, which held vaccine trials, don't expect to take delivery before mid-2021. But Egypt still stands to benefit more than others -it has pre-ordered enough for about half of its population and should gain from any travel reopenings. The vaccine breakthrough has been a key catalyst for the rally in EM assets, with both currencies and stocks gaining significantly in the second half of November. They stand to gain further if present global trends continue. 

MSCI EM equity index (LHS) JP Morgan EM FX index

EM: FX and equities Index Source : Oxford Economics/Bloomberg