A vaccine is a major step, but policy response is also key
Some economists have been quick to upgrade their GDP forecasts for next year in response to the news that the Pfizer-BioNTech Covid-19 vaccine appears highly effective.
While this development undoubtedly marks a big step forward, for now, we are sceptical that this will provide a meaningful boost to our slightly above consensus forecast for global GDP growth in 2021.
Recent developments certainly reduce the downside risks to our economic forecasts. However, a comprehensive vaccination program will take many months, supporting our view that a permanent and substantive removal of pandemic restrictions globally will only begin in mid-2021.
A key factor in growth projections is the policy response. A clearer path to “normal” may encourage governments to continue short-term emergency support, increase struggling firms’ resolve to stay afloat, and encourage households to spend. All of this could reduce the economic scarring. But we remain wary of potential policy mistakes, in particular governments easing back on fiscal support too quickly once a vaccination begins to be distributed.