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by  Eric Lascelles Feb 23, 2021

What's in this article:


This week’s MacroMemo covers the latest infection numbers, the extent to which economies are reopening, and the rate of vaccination. The update considers the possibility that herd immunity proves elusive, plus the post-pandemic trajectory for working from home and urbanization. Recent economic developments are reviewed, including surprisingly chipper U.S. economic data, rising U.S. fiscal stimulus expectations and the Canadian immigration outlook.

Overall, the past week has brought more positive than negative developments.

Positives include:

  • The rate of COVID-19 infections and fatalities continue to decline globally.
  • The rate of vaccination continues to accelerate in most countries.
  • Vaccine efficacy in Israel is proving surprisingly high.
  • Vaccine nationalism concerns have shrunk somewhat.
  • Recent economic data has been surprisingly good.
  • U.S. fiscal stimulus may be larger than previously expected.
  • We continue to believe there will be surprisingly few lasting consequences once the pandemic is over.

Conversely, there are a few key negatives:

  • Most distressingly, the new vaccine variants continue to accelerate, suggesting the very real risk of an imminent third wave.
  • Relatedly, the infection trend has stopped falling in a few jurisdictions – possibly a precursor to a broader reversal.

Virus developments

The global COVID-19 infection trend remains extremely favorable. Global daily cases have now fallen by 53% relative to early January, to approximately 350,000 new infections per day (see next chart). This is the lowest reading since mid-October. Global fatalities are now also declining sharply.

Global COVID-19 cases and deaths

Global COVID-19 cases and deaths

As of 02/21/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

While most countries are improving, the decline has been particularly impressive among developed nations. They now record fewer new cases than emerging economies, for the first time in several months (see next chart). Of course, this doesn’t mean that emerging countries are performing worse – they contain 85% of the world’s population.

COVID-19 emerging market and developed market infections

COVID-19 emerging market and developed market infections

As of 02/21/20201. Calculated as the 7-day moving average of daily infections. Source: WHO, Macrobond, RBC GAM

The improvements since early January are quite impressive:

  • Canada’s daily infections have declined by a steep 66% (see next chart).
  • The U.S. has fallen by 72% (refer to subsequent chart).
  • The U.K. numbers have plummeted by 81% relative to their early-January peaks. The U.K. now boasts its lowest infection rate since early October.
  • California COVID-19 hospitalizations have now fallen from 23,000 to 7,000 over the span of a mere month. Fatality figures are also in significant decline. We expect a further collapse over the coming month as vaccines become visible.

COVID-19 cases and deaths in Canada

COVID-19 cases and deaths in Canada

As of 02/21/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

COVID-19 cases and deaths in the U.S.

COVID-19 cases and deaths in the U.S.

As of 02/21/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Israel finally improves

Israel has long led the world in vaccinations, but oddly had not managed to significantly corral the virus. All of that has now changed. The Israeli figures show a sharply declining infection and fatality rate (see next chart). As we had speculated in the past, the country was likely on the cusp of an explosion in cases when it began vaccinating, and so its initial success came in the form of neutralizing that explosion rather than actually reducing the case count. Indeed, one estimate is that as many as 90% of Israel’s cases may now be the new more contagious variants.

COVID-19 cases and deaths in Israel

COVID-19 cases and deaths in Israel

As of 02/21/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Rate of improvement slowing?

One concern amid this great global success is that the rate of improvement appears to be decelerating slightly. Some of this is an illusion: One cannot expect the number of cases per day to continue falling at the same rate even as the total number of cases declines. It is arguably fairer to evaluate the rate of progress on a percent basis. By this measure, the improvement has actually been fairly steady in many countries even as their downslopes becomes less sharp.

New variants’ insidious progress

Certainly the most disturbing virus trend is that the more virulent variants appear to be accelerating. The figures are still murky given that the vast majority of positives are not sequenced to determine their underlying form.

Nevertheless, it is clear that the new variants are more transmissible and will eventually become the dominant global strain. The U.K. variant took over the U.K. after about four months. French officials now estimate that up to 25% of their cases are variants. In the U.S., estimates vary but broadly argue that the number of variant cases is rising by between about 70% and 100% every week. In other words, even as the original virus is fading, the new one is secretly accelerating.

To the extent that epidemiologists believe the new strains may dominate by the end of March, this argues that variant cases are rising rather than falling at the present level of social distancing restrictions. In turn, a third wave of infections may be imminent. Increasingly widespread vaccinations should prevent fatalities and hospitalizations from spiking to the same extent.

In fact, through a Canadian lens, some of this prophecy may already be visible. For example:

  • Newfoundland – which previously had very few infections – is now suffering an acceleration in cases due to the spread of a new variant.
  • Ontario’s infection numbers recently stopped falling (see next chart).
  • Alberta’s infections are beginning to rise again (see subsequent chart).

Admittedly, there could be Family Day-based data gremlins in the final two provinces.

Spread of COVID-19 in Ontario

Spread of COVID-19 in Ontario

As of 02/21/2021. Calculated as 7-day moving average of daily cases and total cases. Source: Government of Canada, Macrobond, RBC GAM

Spread of COVID-19 in Alberta

Spread of COVID-19 in Alberta

As of 02/21/2021. Calculated as 7-day moving average of daily cases and total cases. Source: Government of Canada, Macrobond, RBC GAM

Among other countries, Germany is also prominent in starting to experience a rising trend again (see next chart).

COVID-19 cases and deaths in Germany

COVID-19 cases and deaths in Germany

As of 02/21/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

India may also be starting to deteriorate after a long and happy improvement (see next chart).

COVID-19 cases and deaths in India

COVID-19 cases and deaths in India

As of 02/21/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

It is unclear the extent to which all – or any of this – is the result of new variants, but they are an obvious suspect.

Reopening trend

Consistent with declining infections, hospitalizations and fatalities, there continues to be more economic reopening than closing. This trend toward fewer restrictions is finally visible in our global stringency index (see next chart).

Global Stringency Index

Global Stringency Index

As of 02/21/2021. Global Stringency Index measuring the strictness of lockdown policies that restrict mobility, calculated as stringency index of 50 largest economies. Sources: University of Oxford, International Monetary Fund, Macrobond, RBC GAM

While the reopening is good for the economy in the short run, we have several concerns that it may be premature:

  1. The rate of infection is still fairly high. No one was content last November when the daily infection rate was similar to today.
  2. Governments have repeatedly re-opened too early and too enthusiastically after prior waves, setting the stage for further waves. The risk is that they are doing the same thing again. 
  3. The new variants constitute a major threat. As surfaced earlier, they appear to be actively accelerating even at the current level of restrictions.

Although the trend is toward additional opening, some regions are nevertheless locking down to a greater extent, including an Indian province, Canada’s Newfoundland and a variety of schools as they encounter the new variants. In the U.S., Wyoming, North Dakota and Iowa have accelerating infection counts. This suggests they may need to impose additional restrictions.

Immunity passport

Last spring, a much-discussed subject was the idea of an immunity passport for people who had already recovered from the virus, allowing them to go about a nearly normal life. That never came to fruition, in part because the duration of protection via natural antibodies appeared not to be very long.

However, the idea has returned now that vaccinations are providing a more durable immunity. In fact, Israel is set to implement the idea, allowing only people with an immunity passport into gyms, shopping malls and hotels.

Might this become the norm elsewhere? The main attraction of an immunity passport is that it allows an earlier normalization of life and of economic activity. Secondarily, it encourages people to be inoculated.

However, it also has several drawbacks:

  • It is not clear that many countries other than Israel have a sufficiently sophisticated electronic health care system to produce a functioning digital passport. A paper version might be subject to counterfeiting and could be shared by multiple people.
  • It would punish those who are not in priority inoculation groups, excluding them not just from social interaction but also employment opportunities.
  • Depending on whether natural immunity is counted, it might encourage people to intentionally contract the disease.

Let us see how Israel fairs with this idea. Ultimately, despite its flaws, it probably makes sense to pursue an immunity passport system since it is inefficient to make people continue to socially distance even after they are probably no longer at risk or a threat to others.

Vaccination developments


Over 205 million COVID-19 vaccine shots have now been delivered globally, spanning 92 countries. Israel remains the leader, with a remarkable 83 shots per 100 people (recall that each person needs two shots to be fully protected). The United Arab Emirates is now up to 56 shots, the U.K. has achieved 27 and the U.S. has reached 18 shots per 100 people (see next chart).

Cumulative doses administered by country

Cumulative doses administered by country

As of 02/21/2021. Cumulative total doses administered by country per 100 people. Source: Our World in Data, Macrobond, RBC GAM

Europe continues to lag, with around 6 shots per 100 people. Canada drags further behind at 3.7 shots, though it is finally beginning to receive an accelerated number of shipments this week.

Still further behind are China (2.8 shots), India (0.8 shots) and Japan (which has just now begun to vaccinate).

U.S. vaccine optimism

We continue to track a betting market that seeks to predict when 200 million Americans will be inoculated. Optimism has risen significantly over the past several weeks. A mere month ago, fewer than 20% of forecasts were that this would be achieved by the middle of 2021. Today, fully 75% expect this to be achieved by then.

Good efficacy news

The Israeli Prime Minister reported that more than 97% of COVID-19 deaths in Israel now come from the cohort of people that have not been vaccinated. This is impressive given that the more vulnerable people are in the vaccinated group.

There has been much debate about the one-dose vaccination strategy (inoculating as many people as possible with a single dose, in contrast to the recommended protocol of two doses in fairly short succession). Initial results seemed unpromising. Several studies appeared to suggest a mere 30% to 50% efficacy rate after a single dose – low enough to argue that the strategy was unwise.

Fortunately, two more thorough studies have yielded far more promising results. An article in the New England Journal of Medicine finds that the Pfizer vaccine has an efficacy rate of 93% after just one dose, while the Moderna vaccine enjoys an efficacy rate of 92%. Meanwhile, a peer-reviewed study in Israel finds that a single dose of the Pfizer vaccine generates 85% effective immunity. These are very nearly as high as the two-dose trial results, and strongly endorse the one-dose vaccination strategy as a stopgap until vaccine supply is no longer a constraint.

Israel has now also published results with regard to the efficacy of vaccines after two doses. Remarkably, the frequency of death, serious illness and hospitalization all fell by 99%. Overall COVID-19 infections fell by 96%. This is in line with or better than the trial results, a rare achievement.

Less vaccine nationalism

Despite articulating in recent weeks its ability to limit vaccine exports should it so desire, the EU has not actually done so. It has approved all vaccine export requests so far, including to the U.K., U.S., China, Japan and Canada. As supply constraints become less intense over the coming months, this risk presumably diminishes further.

Elusive herd immunity

Prior to the arrival of the new virus variants, herd immunity might have been achieved after just 60% to 70% of the population had achieved COVID-19 immunity. Now it appears that the new variants may demand something like 75% immunity before they can fade away.

Frankly, it is hard to see society getting there. There are two main challenges:

  1. A significant fraction of the population can’t be inoculated.
  2. The efficacy rate for those inoculated is below 100%.

The primary group excluded from the inoculation campaign is children. Collectively, 26% of the world is aged less than 15, and around 20% of the developed world. For the moment, this group is not eligible to be inoculated. This makes the pursuit of 75% immunity nearly impossible, even before sub-100% efficacy rates are considered. Additionally, there are other people with health conditions that do not allow them to be inoculated, and others will refuse to be inoculated for personal reasons.

Simultaneously, even with some vaccines appearing to cut infections by as much as 96%, other vaccines report lower efficacy rates. As such, let us assume a 90% efficacy rate against the original version of the virus. But the South African virus variant appears much less vulnerable to existing vaccines, with an efficacy rate potentially as low as 50%.

As such, in a worst-case scenario of perhaps 65% of the population being inoculated and the vaccines only functioning at a 50% efficiency, a mere 35% of the population would be protected. Fortunately, children seem reasonably likely to be added to the eligible pool of recipients over time. At the same time, vaccine-makers are attempting to develop boosters that protect against the South African variant. But even if everything goes right, it will be a tight squeeze to achieve herd immunity.

In short, even with a successful vaccine rollout in 2021, the virus will probably live on in some form into 2022 and perhaps beyond, somewhat akin to the seasonal flu. Most of life could return to normal and nearly all economic activity could revive. But it could be that people will have to wear masks in the winter and that customs like handshakes will have to be abandoned.

Economic developments

Traditional data argues for U.S. January growth

U.S. retail sales rose a big 5.3% in January relative to December, reversing a pattern of three monthly declines. Some of this strength was surely the result of the latest round of U.S. fiscal stimulus (see next chart). But it nevertheless means the U.S. economy likely grew despite the peak of the latest virus wave coinciding with the month.

Evidence of U.S. stimulus doing its job

Evidence of U.S. stimulus doing its job

As of Jan 2021. Source: U.S. Census Bureau, Macrobond, RBC GAM

Furthermore, and less influenced by fiscal stimulus, January industrial production rose by a solid 0.9%.

Strong start to February in U.S.

While U.S. jobless claims remained soggy in both January and February, leading indicators for February were promising. The Markit Manufacturing Purchasing Managers’ Index (PMI) slipped only slightly from 59.2 to a still-strong 58.5. Meanwhile, the COVID-19-affected services index managed to rise from a good 58.3 to an even-better 58.9. It seems very likely that the U.S. economy has continued to grow in February.

Real-time signals also good

Our stock of real-time economic indicators confirms the impression of economic growth in February. Daily hours worked by hourly workers has begun to inch higher after a long swoon since November (see next chart, and be sure to look past the various holiday dips).

Percentage change of hours worked by hourly workers in the U.S.

Percentage change of hours worked by hourly workers in the U.S.

As of 02/09/2021. Impact compares hours worked in a day vs. median for the same day of the week in January, 2020. 7-day moving average used. Source: Homebase, RBC GAM

This measure and other real-time indicators are then aggregated into our U.S. Economic Activity Index, which also demonstrates a moderate rebound after several months of slight slippage (see next chart).

U.S. economic activity has shifted to low gear

U.S. economic activity has shifted to low gear

As of 02/06/2021. Economic Activity Index is the average of 10 high-frequency economic data series measuring the year-over-year percentage change. Source: Bank of America, Goldman Sachs, OpenTable, Macrobond, RBC GAM

U.S. Q1 GDP and risks

The Atlanta Fed’s GDPNow indicator now tracks first-quarter annualized U.S. GDP growth of 9.5%. This is impressive stuff for a quarter theoretically impinged by economic restrictions. Further, the forecast rose significantly over the span of the past month.

But a new negative risk to this forecast is the recent deep freeze across a number of U.S. states, most profoundly in Texas. More than three million people lost power, 13 million lost access to water, and oil production and refining were temporarily significantly impeded. Insurance costs are estimated to be as much as US$50 billion, nearly as high as a year’s worth of hurricanes. Commerce also ground to a halt, with retailers largely closed and some manufacturing production also stopped. Of course, such weather-related shocks tend to be short-lived. Whatever is subtracted from mid-February activity should be returned over the subsequent several weeks, such that the annual outlook won’t be materially affected.

U.K. economy still wobbling

The British economy conjured a series of contradictory indicators. Somehow, the economy grew in the final quarter of 2020 despite a significant lockdown, expanding by 1%. Within that, November suffered a 2.3% decline while December managed a 1.2% gain.

The choppiness appears set to continue. U.K. retail sales in January have contracted by a steep 8.2%, hinting at a return to economic decline in the month.

But February purchasing manager indices (PMI) then tilt in the opposite direction again, with the manufacturing PMI up from 54.1 to a robust 54.9. Meanwhile, the services PMI staged a massive rebound from a pitiful 39.5 to a muted 49.7. All told, these PMI readings argue for at least modest economic growth in February. From there, the country’s remarkable vaccination successes suggest significant economic advances in subsequent months.

Differences within the Eurozone persist

The Eurozone February PMIs remained quite split. The manufacturing sector is booming, with a rise from 54.8 to 57.7. Meanwhile, the services sector remains seriously limited, falling from a poor 45.4 to just 44.7.

Canadian economic underperformance

Canadian retail sales fell by an unsurprising 3.4% in December. At the same time, the statistical agency’s flash estimate for January was a definite disappointment, anticipating a further 3.3% retreat. Canada’s slightly more aggressive economic lockdown, slower vaccine deployment and lack of new fiscal stimulus (all in contrast to the U.S.) have contributed to an 8 percentage point divergence in January retail sales growth rates between the two countries. It would appear that the Canadian economy may have shrunk slightly in January.

Canadian immigration undershoot/overshoot

As a nation, Canada is unusually reliant on immigration. Indeed, over the next 30 years, Canada is projected to enjoy the greatest net immigration as a fraction of its population of any major nation (see next chart). This is a remarkable thing.

Global migration: from less developed countries to more developed countries

Global migration: from less developed countries to more developed countries

Source: UN World Population Prospects 2019, Macrobond, RBC GAM

However, in the short run, this reliance on immigration has been a millstone for Canada. Immigration collapsed during the pandemic due to tighter borders and shuttered consulates. It is actually somewhat remarkable that Canada’s number of new immigrants in 2020 only fell by about half, from a 341,000 target to 184,000 realized permanent residents. Nevertheless, this undershoot was a drag on economic growth.

Reaffirming earlier comments, the Canadian government has again emphasized that it plans to play catch-up over the coming three years to offset the earlier shortfall. As such, Canadian economic growth should be even faster than otherwise over that period of time as the earlier population hole is filled.

There are two related risks in this effort:

  1. The number of highly skilled immigrants may be somewhat lower due to the extra push. Already, there are reports that Canada has significantly eased its previously strict requirements.
  2. Simultaneously, as the U.S. becomes friendlier to immigrants under President Biden, the U.S. may siphon off some of the talent that would have otherwise picked Canada.

U.S. fiscal expectations

The U.S. has already been busy from a fiscal perspective, delivering a large $900 billion stimulus package in late December. President Biden has long proposed a further round of stimulus, worth as much as $1.9 trillion. We and many others had initially imagined that this would be wrung down to around $1.0 trillion, reflecting the fact that any legislation would require unanimous Democratic Party support in the Senate, and not every Democrat is in favor of a spiraling debt load.

But recent rumblings out of Washington, D.C. increasingly argue that the fiscal package could be larger than the presently assumed $1.0 trillion, perhaps on the order of $1.5 trillion. This $500 billion difference represents a substantial further 2.5% of GDP. Estimates of the additional economic boost vary considerably. They range from just 0.6%, as per the Penn Wharton Budget Model, to a big 4%, according to the Brookings Institute. We think it will be closer to the high end of the range. We already sport an above-consensus growth outlook for the U.S., but it may need to be ratcheted even higher should this come to pass.

The arguments in favor of another bold package include:

  • The Senate can only use the reconciliation process to pass legislation with a simple majority instead of a supermajority once a year, so they should try to make it count.
  • The years following the global financial crisis brought several unpleasant economic surprises such as oil inflation after the Arab Spring and a debt ceiling crisis in 2011. It can be useful to have additional fiscal firepower at the ready after a recession.
  • The global financial crisis was initially estimated to have done less economic damage than it actually delivered, highlighting the risk that the economic damage from the pandemic could also eventually be found to have been larger than first thought.
  • The unemployment rate for the bottom quartile of the labour force is closer to 20% than the 6% rate that prevails in the economy as a whole.
  • There are still unresolved credit issues such as 2.7 million mortgages in forbearance that will expire between March and June.

Despite these considerations, our sense is that this stimulus plan may be too large given that the U.S. economy is already moving well and set to expand enthusiastically over 2021. As well, vaccinations are progressing nicely, the public debt load is already considerable, and inflation concerns are mounting. But we do not get to set the policy agenda.

Remarkably, there is also serious talk about an infrastructure package that could itself be up to $2 trillion in size. On the one hand, there is logic to this. Congress is now Democrat-led, and the Democratic Party tends to be pro-spending. Politicians usually pivot to infrastructure once the crisis phase of a recession is over. Borrowing costs are so low that the return on investment would likely be positive, and – relatedly – the fiscal multiplier on infrastructure projects tends to be quite good.

But the reconciliation process can only be used once per year, so any infrastructure effort would likely require the support of 10 Senate Republicans. Even though infrastructure tends to be a popular bipartisan issue, an accord was elusive over the past several years. Perhaps it will be easier to strike a deal with President Trump now out of office, but it isn’t clear that the timing is right given that:

  • Most of the economic benefit will arrive between 2022 and perhaps 2025 – a time when the economy should theoretically already be operating near its peak, and
  • Public debt levels are already high.

Lasting pandemic aftermath

We’ve written extensively about which of the various pandemic themes should and shouldn’t persist once the virus itself is quieted. Our central thesis remains that there should be surprisingly little economic scarring, and indeed surprisingly few permanent legacies of the pandemic.

As the next graphic conveys, we break the post-pandemic implications into those that should be short-lived, those that may be multi-year in nature (but ultimately impermanent), and those that are set to be permanent. Even among the permanent items, most should partially or even significantly reverse. Really, the only items that appear set to remain in full force are a greatly increased level of public debt and the additional automation implemented over the past year.

Lasting implications of COVID-19: few are truly permanent and most should partially reverse

Lasting implications of COVID-19: few are truly permanent and most should partially reverse

As at 02/17/2021. Source: RBC GAM

Let us focus on two of the subjects contained within the graphic: working from home and the outlook for cities to revive.

  1. Working from home to fall sharply

Just 13% of Canadian workers did even a small amount of scheduled work from home before the pandemic. This then surged to 39% of the workforce predominantly working from home during the lockdown peak of March 2020. It is uncontroversial to conclude that the post-pandemic working from home experience will likely land somewhere between these two extremes. But to what extent?

As discussed in the graphic below, working from home has many charms and productivity in the short run was not damaged. However, ultimately, the great majority of business executives believe offices are important. More than two-thirds expect their workers to be in the office three-plus days per week after the pandemic. Also, they view offices as importantly aiding collaboration, bolstering corporate culture and enabling better interaction with clients. In fact, most executives anticipated adding to their office real estate over the coming three years. As such, we suspect that working from home will decline sharply once the pandemic is over, while remaining well ahead of the pre-pandemic norm.

Working from home to significantly reverse, but remain elevated

Working from home to significantly reverse, but remain elevated

As at 02/18/2021. Source: PwC, Statistics Canada, RBC GAM

  1. Outlook for cities to revive

Recently, rural and suburban real estate have been white hot, while downtown condos have largely been left out of the property boom. People are understandably placing a greater value on physical space and relishing the opportunity to work remotely.

However, the power of urbanization should not be underestimated, as discussed in the next graphic. Urbanization has been a central organizing force for humanity for thousands of years, and persisted despite earlier pandemics and other shocks. Some expected cities to fade upon the invention of the telephone, and then the PC, and then the internet, but urbanization continued to advance throughout it all.

Cities and urbanization have suffered, but should reassert themselves

Cities and urbanization have suffered, but should reassert themselves

Note: The data presented for the censuses from 1851 to 1951 are based on the definition of rural areas in use at that time. As at 02/18/2021. Source: Statistics Canada, University of Colorado, World Economic Forum, PwC, Our World in Data, RBC GAM

In general, cities offer superior jobs (most of which will require at least some time in the office), and a diversity of employers. Cities also act as hubs of innovation, allow the easier delivery of public services, and afford proximity to quality education, health care, culture, family and community.

Thus, one might imagine suburbs and perhaps even rural areas outperforming downtowns for a period of time. However, it is unlikely that cities will be permanently hobbled.

-With contributions from Vivien Lee and Sean Swift

Interested in more insights from Eric Lascelles and other RBC GAM thought leaders? Read more insights now.


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