Concerns within markets about the impact of the Delta variant on the economy is in our view warranted. We have long warned that vaccinations would be unlikely to trigger a smooth transition to normalcy.
The sharp rise in case numbers in the UK and to a lesser extent Israel suggests that the Delta variant could wreak havoc in economies where vaccination rollouts are significantly less advanced and thus generally pose the biggest downside risk to emerging markets.
For those economies where vaccination rates are higher, comfort can be drawn from the muted rise in new hospitalisation within the UK and Israel. It may be that exit waves are a necessary evil for economies that wish to open before the vast bulk of the population have full vaccine protection.
Nonetheless if economies reopen and allow cases to surge, the economic gains could prove illusory if Covid-related absences triggers major disruption to businesses and higher cases prompt greater voluntary social distancing. Ongoing developments in the UK could provide more insight into this risk. But for now, the evidence is inconclusive.