Hopes of economic recovery rise as vaccine nears.
News that Pfizer’s COVID-19 vaccine has been proven 90 per cent effective in phase three clinical trials has seen hopes rise that UK GDP could return to pre-pandemic levels as early as summer 2021.
The news has lead to some forecasters who produced predictions say that their “upside” predictions now appeared to be more likely, with the rollout of a viable vaccine beginning at the end of 2020 likely meaning that most forecasts would be outstripped.
Oxford Economics’ baseline scenario forecasts GDP growth of 5.4 per cent next year, with an upside forecast of 8.9 per cent. The consultancy’s Andrew Goodwin commented that news of the vaccine “changes the skew of the risk profile, placing a higher probability on our upside scenario”.
Centre for Economic and Business Research chairman Douglas McWilliams, meanwhile, said that GDP growth for 2020 “might be double-digit or close to that”, going so far as to suggest that ground lost since the outset of the pandemic in March may be recovered “as early as mid-2020”.
Panmure Gordon UK economist Simon French commented: “This would bring forward the period for return to pre-COVID levels of output to the first half of 2022, from the first half of 2023.”
Capital Economics concurred, saying that GDP could “rise to its pre-virus level a year earlier than otherwise … early in 2022 rather than 2023” and that unemployment would likely peak next year at 7 per cent as opposed to 9 per cent.
Recently, the Bank of England had downgraded its forecast for 2020 from a 9.5 per cent contraction, to an 11 per cent contraction, forecasting recovery to proceed slower than expected with growth of 7.25 per cent, rather than 9 per cent.
The BoE predicted that ground lost since March would be recovered by early 2022, however, its forecasts were not based on a scenario in which a vaccine was discovered so soon.
Economist George Buckley of Nomura commented: “It’s certainly very encouraging news so could present upside risks to our view. The vaccine means there’s now a greater chance of a ‘step adjustment’.”
Elsewhere, Michael O’Leary, CEO of budget airline Ryanair, called the news “first bit of sunshine we’ve had for the past 12 months”. O’Leary predicted that air traffic could reach between 75-80 per cent of its pre-pandemic levels by summer 2020, a significant increase from the 50-80 per cent range he had forecast just the week prior.
Author: Steven English