As Deutsche Bank Marion Laboure and Jim Reid wrote last week, whereas vaccines normally require years of testing and additional time to produce at scale, amidst the modern era pandemic scientists are hoping to develop a coronavirus vaccine within 12 to 18 months. The reason for that while normally a vaccine takes years to develop using a traditional process, with covid things are far more accelerated…
and furthermore, there are already no less than 160 covid vaccine candidates currently in process as the following table shows…
… with the top 6 listed below.
Here is what the top vaccine makers have said publicly about the state of affairs courtesy of Deutsche Bank.
Still, there are caveats and there is a distinct possibility a vaccine may not emerge any time soon as various roadblocks may still emerge as the following bulletin of key dates, timelines and road blocks summarizes:
- Work began in January 2020 with the deciphering of the SARS-CoV-2 genome. The first vaccine safety trials in humans started in March.
- All candidates have received regulatory approvals to move quickly to human trials, skipping the years of animal trials that are the norm in developing vaccines. Another way to accelerate vaccine development is to combine phases. Some coronavirus vaccines are now in Phase I/II trials combined together.
- Meanwhile, SARS and SARS-CoV-2, the virus that causes Covid-19, are roughly 80 percent identical, and both use so-called spike proteins to grab onto a specific receptor found on cells in human lungs. So using the already existing research work of SARS scientists have pushed ahead quickly.
- Global goal is to develop effective vaccine possibly by early 2021. Researchers of Oxford vaccine candidate have announced that their vaccine could be ready for emergency use as soon as September if phase 3 trials are successful.
- China’s CanSino vaccine was the first to reach Phase 1 and Phase 2. Sinovac, Sinopharm, Astrazeneca, Moderna, CanSino and Pfizer all reached phase 3 in July.
- However, researchers caution that less than 10 percent of drugs that enter clinical trials are ever approved by the Food and Drug Administration.
The risk of a failed vaccine however no longer figures in Goldman’s economic forecast, and as Goldman’s Jan Hatzius writes in a report over the weekend, Goldman now expects “that at least one vaccine will be approved by the end of 2020 and will be widely distributed by the end of 2021 Q2. We have incorporated this timeline as our baseline forecast, and now assume consumer services spending accelerates in the first half of 2021 as consumers resume activities that would previously have exposed them to Covid-19 risk.”
Yet even though polling has shown that only 42% of Americans would submit to a covid vaccine, Goldman is still optimistic enough to upgrade its growth forecast which becomes more front-loaded. Specifically, the bank’s previous GDP forecast reflected a weighted average across possible vaccine scenarios, including the possibility of no vaccine by the end of 2021
Since then the vaccine outlook has since become clearer and more positive according to Hatzius who notes that “the economic benefits for the US appear particularly large due to its leadership in the vaccine race and worse virus control. As a result, we now expect that at least one vaccine will be approved this fall with widespread distribution and positive growth effects felt in the first half of 2021 (dark blue line in Exhibit 1).”
Assuming Goldman’s optimism plays out, and there is an earlier approval of a vaccine, it would have two main effects on the bank’s growth forecast:
- First, it will accelerate the recovery starting in 2020Q1 as consumers resume high Covid-19 risk activities that could not fully recover prior to a vaccine.
- Second, the effect of the vaccine is larger in the early approval scenario because it limits scarring effects that could not be undone quickly if the vaccine arrives later.
Following a vaccine approval, Goldman assumes that the rate of recovery for the most affected spending categories doubles and increases by 50% for categories that are moderately affected. This accelerated recovery speed is applied to all of H1 in 2021 but decelerates the recovery in the second half of the year, to reflect growth pulled forward in time.
Exhibit 3 shows the new GDP path, which leaves Goldman’s 2020 forecast unchanged, including the assumption that the still-high level of virus spread will keep consumer activity stalled through the end of this month. The updated vaccine outlook is reflected in the rapid decline in the drag from the consumer services sector—shown by the dark blue bars—during the first half of 2021. Under this forecast, the contribution of consumer services spending to the output gap falls to -1.1pp by the end of 2021Q2 (vs. -2.0pp previously). This is partially offset by slower consumer services spending growth in the second half of 2021, leaving our forecast of the level of GDP at the end of 2021 slightly higher. On net, Goldman’s growth forecast “is more front-loaded and modestly upgraded.”
What does this mean in terms of an annualized quarterly GDP basis?
Goldman now expects GDP growth of +10% in Q1 2021, +8% in Q2 2021, +4% in Q3 2021, and +3% in Q4 2021 (vs. +8%, +6.5%, +5%, +4% previously). This raises 2021 growth to +6.2% on an annual average basis (vs. +5.6% previously) and +6.2% on a Q4/Q4 basis (vs. +5.9%).
It also means that if Goldman is correct, and the polls predicting a victory for Biden and a Democratic sweep are also on the money, then Joe Biden faces an impressive first year in the office with near record quarterly GDP gains.
Still, despite these overly optimistic forecast upgrades, Goldman cautions that downside risks have also risen due to Congress’s failure to pass a Phase 4 fiscal package, and while last night’s executive orders postponed the fiscal cliff through August and the bank still expects a package worth around $1.5 trillion to become law by the end of the month, “the risk of no further legislative action has increased and could pose a threat to the budding recovery.”