At each new wave, the impact on GDP was shallower. To some extent this reflects the higher level of preparation of the corporate sector. The communication systems have been tested and retested for phases of generalised hybrid working modes. But probably more profoundly the advent of vaccines has made it possible in many countries to move away from indiscriminate lockdowns and massive impact on economic activity to impose pass systems where access to certain services – which can thus continue to operate at fairly high capacity – is made conditional on an individual's vaccine status.
This approach had been developed at the national level in France and Italy originally, but we can see that this model is being adopted in a wider array of initially sceptical countries given the current strength of the Delta and Omicron waves.
As we write, it is still unclear how much protection existing vaccines provide against the Omicron variant but in any case manufacturers seem comfortable with the possibility to tweak their product within months.
This makes us relatively optimistic that the Omicron wave can be dealt with, with only limited damage to the global economy – assuming however the implementation of the Franco-Italian model is swift. Somewhat paradoxically, places with high level of social trust – where people can reasonably expect their neighbour will “do the right thing” spontaneously, without the need for a government mandate – such as the German speaking countries, are still left with a surprisingly high proportion of unvaccinated citizens.
In those places, a serious acceleration will be needed to avoid a recourse to growth-busting lockdowns.
China syndrome
We need, however, to explore one potential scenario: the emergence of a significant wave in China. Indeed, among the major economies it is the only one pursuing a “zero case” policy, in the sense that even a handful of cases trigger extremely stringent mobility restrictions.
Beijing announced in November that it would stick to this approach, despite a decent vaccination rate in China. There is thus a risk that at some point in 2022 the capacity of China to operate as the leading manufacturing hub of the global economy could be significantly impaired, which would be a major source of supply-side disruptions in other countries irrespective of their own approach to the pandemic.
In our baseline scenario where only limited Covid disruption materialises in 2022, we should see a convergence of the pace of activity across sectors. At the peak of the pandemic, the notion of a 'K-shape' recovery had gained a lot of traction.
This describes a situation where some sectors – hospitality – suffer disproportionately from restrictions and see their level of activity plummet while others – for example digital services and hardware – benefit from the crisis.
