Jim Power: Vaccine news offers cautious optimism
Pfizer's apparent vaccine breakthrough should be cause for "cautious, rather than wild, optimism".
Over recent months, when asked about my prognostications for the Irish economy, I have consistently responded that for the foreseeable future the path of the economy would be determined by the fundamentals of epidemiology rather than the fundamentals of economics.
Since March, the economy has been in various degrees of lockdown, and this is now clearly the strategy of our health experts for as long as the virus remains a threat.
Unfortunately, there has been no attempt at proper risk assessment, and the approach to testing and tracing has not been good. We are not alone in that regard.
The damage done to large swathes of the economy — and, indeed, society — has been significant, as I think we will find out over the coming years.
The National Public Health Emergency Team (NPHET) was set up as an emergency response unit, and not as a longer-term strategy unit. That should be the role of the Government, but its strategy is obviously one based on hope, and hence a continuation of periodic lockdowns until a vaccine arrives.
That is a harsh reality for thousands of small business owners around the country.
At so many different levels, it has been a tough eight months, with little joy. That is, at least, until the beginning of last week. The announcement by Pfizer and BioNTech that they had developed a vaccine with a 90% efficacy rate, based on preliminary data, gave the nation a lift; gave the world a lift, and gave global stock markets a lift. We have heard terms such as ‘game-changer’ bandied about, and indeed if the claims are backed up with more scientific data, then it truly will be a game-changer.
Over the coming weeks this data will be presented, and it is possible that by the end of November the two firms will apply for ‘emergency use authorisation’, and by the end of the year approval may be given, and it will be gradually rolled out in the new year. Of even more comfort is the fact that a number of other vaccines are in development, that are showing promising signs.
Naturally, the health authorities here and elsewhere are adopting a very cautious approach. They will, obviously, want to see the comprehensive scientific data, but more pertinently, they probably fear that the prospect of a vaccine will cause people to change their behaviour prematurely.
This would be dangerous, as the reality is that it will take some months for successful vaccines to be distributed in sufficient quantities around the world.
The other reality is that infection rates in Europe and the US, in particular, are spiralling at the moment; increasing levels of restriction are being introduced in many countries, and we are facing into a bleak period from a health and an economic perspective.
Wearing the optimist’s hat, one can only hope that the vaccine — or vaccines — will prove effective and that by the middle of next year, Covid-19 will be under control.
For the Irish economy, the impact would be dramatic. One notable feature of the past eight months is that household savings have increased dramatically, due to a combination of precautionary behaviour, and a basic inability to spend.
In the event of a vaccine, these savings would be unleashed in dramatic fashion, leading to a strong recovery in consumer spending, and a lot of foreign holidays. The same would apply to businesses who have put investment intentions on hold. I believe that many businesses and private individuals would, in some respects, forget about the Covid-19 period and try to get back to a high level of normality as quickly as possible.
The likely impact of a vaccine on the Irish economy would likely be replicated around the world.
Does this mean that interest rates would quickly move up and fiscal austerity come back with a vengeance? I don’t think so, and I certainly hope not. Budget deficits and government debt have increased dramatically almost everywhere, and they will continue to grow over the coming months.
Hence, it will be vital to keep borrowing costs down for a long time.
In an Irish context, incredible damage has been done to non-essential retail, the hospitality sector, and personal services such as hairdressing. These sectors will require massive support for some time.
The future looks brighter than it has done for some months, but cautious optimism, rather than wild optimism, is the most appropriate position to adopt.
