26 Jul 2021

Research Briefing | Global

Coronavirus Watch: Delta dilemmas

Economist
 The spread of the Delta coronavirus variant appears to have usurped inflation
as the key concern. The Delta strain will lead to a bumpier and more uncertain
Ben May
path for the global recovery, but for now we think it only warrants only a small
Director of Global Macro adjustment to our baseline GDP forecasts – the downside risks will be explored
Research in a forthcoming scenario within our Global Scenarios Service.
+44(0)20 3910 8015
 After weeks of low cases, Israel – once the poster child of the Covid vaccine
rollout – has seen a sharp rise in cases, adding to evidence that simply
vaccinating a lot of people is no guarantee of a smooth return to normality.

 Nonetheless, the probability of major lockdowns in Israel and most economies

with high levels of immunity due to vaccination or prior infection seems fairly
low. The main risk to growth is from lower-level restrictions and/or disruption
from higher Covid cases and ongoing uncertainties prompting more cautious
behaviour. In these economies, we thus don’t see the need for large-scale
revisions to our growth forecasts (Figure 1).

 For those economies that have adopted a zero Covid policy, Delta may pose
greater challenges. Australia has already been forced to put half its population
into lockdown to contain the spread of Delta, and greater restrictions may be
necessary in the future if the zero Covid policy is maintained. At the same time,
slow vaccination rollout and low immunity due to prior infection risks a surge in
cases and tough restrictions if these economies switch to containment.

For now, the rise in concern about the spread of the Delta variant appears out of
proportion with the rise in new Covid cases at a global level (Figure 8). Worries though
are justified by the rise in new infections in economies such as Australia, which has done
an impressive job of keeping cases persistently low, and economies such as Israel that,
until recently, had managed to push cases down to very low levels and successfully
reopen their economy. So, what can we learn from these recent developments?

Figure 1: Delta poses Implications of the Delta variant on economies' exit paths
a bigger threat to Existing policy
Zero Covid policy Contained spread
some economies
than others Herd immunity unlikely to have been Hospitalisations and deaths, rather than
High attained. If zero Covid policy is cases, likely to become the key metric
vaccination continued, tougher restrictions will be determining policy. Speed at which
rates needed, while vaccination rollout restrictions are eased will partly relfect
continues. tolerance for high Covid case numbers.

Where Covid cases have been elevated

A sustained period of tougher internal
Low and external restrictions may be needed
vaccination to maintain zero Covid, and low
rates immunity is likely to led to a sharp spike
in cases if Covid is allowed to spread.
population immunity may also be high.
Not all vulnerable people likely to be
protected, implying bigger spike in
hospitalisations compared to more
highly vaccinated economies, resulting
in a more cautious/bumpier exit path.

Contact: Ben May | bmay@oxfordeconomics.com

Coronavirus Watch: Delta dilemmas

The number of new Covid cases is mainly a function of the Figure 2: The relationship between Covid case
rates and GDP is weak
lagged level of cases, population immunity, and the degree
of mobility/social interaction taking place. If cases are low, it G20: Cases & GDP falls relative to expectaions
% Difference in GDP in Q1 2021 relatice to that expected in Jan 2020
should be possible to steadily loosen activity restrictions as 4
immunity increases without triggering a surge in new Covid 2
Turkey

cases. But, as has been repeatedly shown, this is easier

0
said than done, reflecting at least four issues. China
South Korea
-2 Argentina
Japan Brazil
First, new Covid variants that are more transmissible or India
Canada
US
-4 Russia
reduce individuals’ immunity may require a reduction in Australia Germany
Italy
Mexico South Africa
-6 France
mobility to keep case numbers stable. Indonesia
-8
Second, it is unclear what the optimal trade-off between -10
UK
cases and mobility is and it may change over time. Up Average number of cases per
-12 million since September 2020
until now, economies that have adopted a zero-Covid 0 50 100 150 200 250 300 350
policies appear to have done relatively well (Figure 2). But Source : Oxford Economics/Haver Analytics

the growing likelihood that Covid-19 will become endemic,

Figure 3: UK and India both have high presence
along with the shifting costs and benefits of keeping cases
of antibodies in their populations
low, means zero Covid may no longer be a realistic or
Presence of Covid-19 antibodies
optimal strategy beyond the near term – more on this later. * UK OE calculation where the figure for aged 0-15 group assumed to be
equal to the figure for 16 year olds (28.9%); Indian figures for ages 6+
%
100 UK (4th July) India (late June/early July)
Third, vaccination rates and the prevalence of
90
antibodies in the population can’t mechanically quantify
80
the extent to which the spread of Covid will be
70
constrained. Recent studies from the UK and India point to
60
a high presence of antibodies within both populations 50
(Figure 3). But we know that while vaccines greatly cut the 40
risk of death or serious illness, they are less effective at 30
preventing milder symptomatic illness. And there are 20
question marks as to the extent they reduce asymptomatic 10

illness and transmission. Uncertainties also hang over how 0

All ages* 18-44 45-60 60+
much past infection provides protects against reinfection and Source : Oxford Economics/ONS/Indian Council of Medical Research
subdues transmission.
Figure 4: Until recently Israel data suggested
At the same time, studies have shown a sharp drop in the normalisation might be straightforward
presence of antibodies just weeks after individuals have Israel: Covid-19 cases and severely ill
Vaccinations
received their second jab. However, it remains unclear Cases per million begin Admissions
Lockdown 2.0 Lockdown 3.0
whether this drop increases vulnerability to reinfection and if 1100 240
Positive Covid-19 cases (7-day
1000 220
so to what extent. moving ave, lagged 7 days, LHS)
200
900
New seriously ill hospital patients
800 (7-day moving average, RHS)
180
Finally, governments can’t fine-tune the level of social 700
160
interactions to control cases. Regular rule changes to 140
600
120
tweak behaviour is impractical, leading to more substantive 500
100
but less frequent rule changes. Just as importantly, 400
80
individuals’ behaviour is also a function of their perception of 300 60
200 40
risk, which is heavily influenced by the prevalence of the
100 20
disease. Persistent low cases can lead to riskier behaviour 0 0
and complacency and thus a subsequent rise in cases even 06 2020 08 2020 10 2020 12 2020 02 2021 04 2021 06 2021 08 2021
Source : Oxford Economics/Israeli Ministry of Health
if rules aren’t changed.

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Coronavirus Watch: Delta dilemmas

Against this backdrop it is no surprise that the reversion Figure 5: UK and Singapore now have
vaccinated more people than Israel
to normality will be bumpy and that mistakes will be
Vaccination progress
made. Israel’s initial success at loosening restrictions while % of population Fully vaccinated Single dose of vaccine
lowering new cases probably wrongly created the 80
impression that transitioning to normalcy might be more 70
straightforward than it is (Figure 4).
60

The good news for economies yet to embark on the 50

transition to full reopening is that a great deal may 40

eventually be learnt from the contrast policies adopted 30
by economies such as the UK, Singapore, and Israel. All
20
three have relatively high vaccination rates but have
10
embarked on different strategies to manage their “exit
waves” (Figure 5 and 6). 0
Israel UK Singapore
Source : Oxford Economics/Haver Analytics
At one extreme lies the UK, which appears to be all but
disregarding the rise in new cases and pressing ahead with Figure 6: Cases have risen since June, but there
the removal of restrictions – the logic is that if are big differences in the scale of the rise
hospitalisations and deaths are low, a higher number of New Covid cases
cases is to a significant degree irrelevant. By contrast, Cases per million people (7-day moving average)
1200
Singapore, which has seen cases increase albeit far less UK
dramatically and from a lower starting point, has opted for Israel
1000
Singapore
semi-lockdown that involves limiting group gatherings to just
two people and banning dining-in at restaurants and other 800

food-and-drinks establishments. Israel sits somewhere in the

600
middle both in terms of case numbers and the government’s
response. It has reintroduced rules such as indoor mask 400
wearing, while largely avoiding restrictions that could be
200
economically damaging.
0
Only time will tell which strategy is best. But without the Jun 20 Oct 20 Feb 21 Jun 21
benefit of hindsight it seems likely that Singapore has Source : Oxford Economics/Haver Analytics

probably been too cautious and has stunted economic

Figure 7: Largests Asia Pacific economies likely
activity for relatively little gain in terms of reducing serious
lag well behind Europe and Asia on immunity
illness from Covid. At the same time, the UK’s strategy
Covid immunity
has caused serious disruption to businesses, with Vaccine doses administered per 100 people
600,000 people in England told to self-isolate via the 140
Canada Israel
NHS Covid-19 app alone. Further, increased voluntary 120 UK
social distancing may also have knock-on implications for Germany Italy
100 US
activity, too. While a return to lockdown is unlikely, the France

government may eventually be forced to reimpose some 80

restrictions to push new cases back down. On the face of it, 60 Japan
the middle ground adopted by Israel appears the more South Korea
40
sensible and proportionate approach to the resurgence in Australia
cases. 20

0
Looking ahead, the economies that may face the biggest 0 50 100 150 200 250 300
Average cases per million people since Sep. 2020
exit challenge may be the success stories. The mainly Source : Oxford Economics/Haver Analytics
Asia Pacific economies that have seen only a small number
of Covid cases to date also have low vaccination rates

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Coronavirus Watch: Delta dilemmas

(Figure 7). As a result, they are likely to have especially low

immunity levels to Covid-19.

The low tolerance approach to Covid has generally been

popular with those economies adopting zero Covid policies,
suggesting that a cautious approach to containing Covid will
continue to be favoured. But the appearance of more
transmissible variants may require tighter controls to
keep Covid cases at or close to zero. Indeed, over half of
the Australian population is now in lockdown, even though
cases are a fraction of the UK’s.

And in a world where Covid is endemic, it is questionable

whether a zero covid policy is feasible in the medium to
longer term without severe restrictions at the borders. Thus,
in order for the low tolerance economies to reopen their
borders, it is crucial for them to build up high rates of
immunity via vaccination. Until then, travel to and from these
economies will remain limited, and businesses will have to
remain mindful of the potential for minor Covid outbreaks to
cause severe domestic disruption. As previously noted, we
see this issue holding back recoveries of the Asia-Pacific
economies.

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Coronavirus Watch: Delta dilemmas

Appendix
Figure 8 Figure 9
World: New Covid cases G20: Covid cases
Thousands (7-day moving average) Cases per million, 7-day average
900 China
Australia
800 Canada
Germany
700 Japan
India
600 South Korea
Italy
500 Mexico
Turkey
400 Indonesia
United States
300 Russia
Saudi Arabia
200 South Africa
Brazil
100 France
Argentina
0 United Kingdom
Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21 May 21 Jul 21 0 200 400 600 800
Source : Oxford Economics/Haver Analytics Source : Oxford Economics/ECDC/OWID

Figure 10 Figure 11
G20: Covid cases G20: Covid cases
Cases per million 7 day average compared to two weeks earlier Cases per million 7 day average compared to four weeks earlier
South Africa Argentina
Argentina Brazil
Russia South Africa
Canada Canada
China India
Brazil China
India Australia
Australia Germany
Germany Japan
South Korea South Korea
Japan Russia
Indonesia Italy
Italy Turkey
Mexico Mexico
Turkey Indonesia
United States United States
Saudi Arabia Saudi Arabia
United Kingdom France
France United Kingdom
-200 -100 0 100 200 300 -200 -100 0 100 200 300 400 500
Source : Oxford Economics/ECDC/OWID Source : Oxford Economics/ECDC/OWID

Figure 12 Figure 13
Spread of coronavirus variants G20: Vaccination progress
Economies reporting sequences Total vaccinations admistered per 100 people
180 South Africa
Indonesia
160 India
Russia
140 Australia
South Korea
120 Mexico
Japan
100 Brazil
Argentina
80 Saudi Arabia
Turkey
60 France
United States
40 China
Germany
20 Italy
United Kingdom
0 Canada
Alpha variant Beta variant Gamma variant Delta variant
(B.1.1.7) (B1.351) (P.1) (1.617.2) 0 20 40 60 80 100 120 140
Source : Oxford Economics/cov-lineages.org Source : Oxford Economics/Our World in Data

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Coronavirus Watch: Delta dilemmas

Figure 14 Figure 15
Share of population fully vaccinated G20: Vaccinations & New Covid cases
Vaccinations administered per 100 people
Indonesia 140 G20 Emerging markets
India
Canada G20 Advanced economies UK
Australia 120
Argentina Germany
South Korea Italy US
100 China
France
Russia
Saudi Arabia
Brazil 80
Mexico Saudi Arabia
Argentina
Japan 60 Brazil
Japan
France Australia
Mexico
Italy 40 Russia
South Korea
US
Germany India
20 Indonesia
UK
South Africa
Canada
0
0 10 20 30 40 50 60 0 50 100 150 200 250 300 350 400 450 500 550 600 650
Source : Oxford Economics/Haver Analytics % Source : Oxford Economics/Haver Analytics New Covid cases per million

Figure 16 Figure 17
G20: Lockdown stringency scores Global: Lockdown stringency index
Current lockdown stringency index score Stringency index score
Brazil 100
India Most
Italy 90
Argentina
stringent
South Africa 80
Indonesia
Australia 70
Germany
60
Turkey
Saudi Arabia 50
Japan
South Korea 40
United States
Russia 30 Range of G20 scores
China G20 (GDP-weighted ave)
Mexico 20 China
United Kingdom US
France Least 10 Italy
Canada stringent South Korea
0
0 20 40 60 80 100 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21
Source: Oxford Economics/Blavatnik School of Government Source: Oxford Economics/Blavatnik School of Government

Figure 18 Figure 19
G20*: Google mobility trends G20*: Apple mobility trends
% difference in visits from the median between Jan 3 & Feb 6
Volume of requests for directions. Week ending Jan 19 = 100
80 * GDP weighted, excludes China & Russia
160 Driving
60 Public transport
140 Walking
40
120
20
100
0
80
-20
60
-40

-60 40
Residential Groceries & pharmacies
-80 Parks Workplaces 20 * weighted by GDP
China is excluded due to lack of data.
Retail & recreation Transit stations Transit data unavailble for some EMs
-100 0
01 Mar 22 May 12 Aug 02 Nov 23 Jan 15 Apr 06 Jul 19 Jan19 Mar18 May 17 Jul 15 Sep14 Nov13 Jan14 Mar13 May 12 Jul
Source : Oxford Economics/Google Source : Oxford Economics/Apple

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Coronavirus Watch: Delta dilemmas
v

Figure 20 Figure 21
G20*: Google mobility trends - residential G20*: Google trends - groceries & pharmacies
% difference in visits from the median between Jan 3 & Feb 6 % difference in visits from the median between Jan 3 & Feb 6
50 * Excludes China & Russia 60 * Excludes China & Russia
G20 range
40 G20 average (GDP weighted) 40
US
Germany 20
30 South Korea
Brazil
Italy 0
20
-20 G20 range
US
10
-40 Germany
South Korea
0 Brazil
-60
Italy
G20 average (GDP weighted)
-10 -80
01 Mar 30 Apr 29 Jun 28 Aug 27 Oct 26 Dec 24 Feb 25 Apr 24 Jun 01 Mar 30 Apr 29 Jun 28 Aug 27 Oct 26 Dec 24 Feb 25 Apr 24 Jun
Source : Oxford Economics/Google Source : Oxford Economics/Google

Figure 22 Figure 23
G20*: Google mobility trends - retail & recreation G20*: Google mobility trends - work
% difference in visits from the median between Jan 3 & Feb 6 % difference in visits from the median between Jan 3 & Feb 6
40 G20 range US 20 * Excludes China & Russia
Germany South Korea
20 Brazil Italy
G20 average (GDP weighted) 0

0
-20
-20
-40
-40
-60
-60
G20 range US
-80 -80 Germany South Korea
Brazil Italy
* Excludes China & Russia G20 average (GDP weighted)
-100 -100
01 Mar 30 Apr 29 Jun 28 Aug 27 Oct 26 Dec 24 Feb 25 Apr 24 Jun 01 Mar 30 Apr 29 Jun 28 Aug 27 Oct 26 Dec 24 Feb 25 Apr 24 Jun
Source : Oxford Economics/Google Source : Oxford Economics/Google

G20*: Google mobility trends - transit stations G20*: Apple mobility trends - driving
% difference in visits from the median between Jan 3 & Feb 6
% difference in visits from the median between Jan 3 & Feb 6
20 * Excludes China & Russia 250 G20 range
US
0 Germany
200 South Korea
Brazil
-20 Italy
G20 average (GDP weighted)
150
-40

-60
100

-80
G20 range US 50
-100 Germany South Korea
Brazil Italy
G20 average (GDP weighted) * Excludes China
-120 0
01 Mar 30 Apr 29 Jun 28 Aug 27 Oct 26 Dec 24 Feb 25 Apr 24 Jun 19 Jan 18 Apr 17 Jul 15 Oct 13 Jan 13 Apr 12 Jul
Source : Oxford Economics/Google Source : Oxford Economics/Apple

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