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by  Eric Lascelles Mar 30, 2021

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The list of positive and negative developments remain essentially static. On the positive side, the economic recovery remains strong. Inoculation efforts are impressive. On the negative side, new variants remain a problem and the third wave continues to build.

Rising infection numbers

Global cases and deaths continue to mount, while remaining well short of their earlier peak (see next chart). Emerging market cases are rising more quickly than developed world ones.

Global COVID-19 cases and deaths

Global COVID-19 cases and deaths

As of 03/28/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Not every country is suffering a rising infection rate, though many now are (see next chart).

Transmission rate below one means COVID-19 decelerating

Transmission rate below one means COVID-19 decelerating

As of 03/28/2021. Transmission rate calculated as a 7-day change of underlying 7-day moving average smoothened by a 14-day moving average of new daily cases. Source: WHO, Macrobond, RBC GAM

India is now experiencing a particularly strong new wave of cases (see next chart). This is relevant not just because of the sheer number of cases (though the country’s massive population dilutes this considerably), but because India is a major vaccine producer. It has at times flirted with withholding vaccine exports to address its domestic needs.

COVID-19 cases and deaths in India

COVID-19 cases and deaths in India

As of 03/28/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Europe remains another third-wave hotspot. Germany, which has done better than most European countries, is fully caught up in the latest wave. However, the country’s fatalities have not yet hooked higher (see next chart).

COVID-19 cases and deaths in Germany

COVID-19 cases and deaths in Germany

As of 03/28/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

The infection numbers continue to rise in Canada. Quebec now joins the country’s other three most-populated provinces with a deteriorating trend (see next chart).

COVID-19 cases and deaths in Canada

COVID-19 cases and deaths in Canada

As of 03/28/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

The U.S. continues to look somewhat better, presumably aided by its extremely successful inoculation efforts. However, its infection numbers have stopped falling and may be starting to inch higher (see next chart). Furthermore, most of the country’s states are now deteriorating (see subsequent chart), so it is unlikely to dodge the variant-driven wave altogether.

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

COVID-19 cases and deaths in Canada

As of 03/28/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Number of U.S. states with transmission rate above key threshold of one

Number of U.S. states with transmission rate above key threshold of one

As of 03/28/2021. Transmission rate calculated as 7-day change of underlying 5-day moving average of new daily cases, smoothed with 7-day moving average. Transmission rate above one suggests increasing new daily cases. Includes Washington, D.C.  Source: Haver Analytics, Macrobond, RBC GAM

Variants and the third wave

We continue to care about the major virus variants because they have such worrying characteristics. The most common of these – the U.K. variant – is now estimated to be around 65% more transmissible, 60% more deadly and 100% more likely to put someone in the hospital. They also appear to be somewhat less responsive to vaccines.

Rough North American data argues that the variants are continuing to spread quickly. New cases are up by around 71% over the past week in Canada and by 47% in the U.S. (see next chart).

Week-over-week growth in total variant cases

Week-over-week growth in total variant cases

As of 03/21/2021. Source: CDC, Government of Canada, RBC GAM

The variants are the reason for the third wave. Fortunately, they are not insurmountable. For instance, Israel was briefly overwhelmed by new variants before its enormously successful vaccination campaign began. If there were any doubt, it is clear that vaccines ultimately beat variants, as reflected in the country’s 14-fold reduction in new infections and five-fold decline in new fatalities since its January peak (see next chart).

COVID-19 cases and deaths in Israel

COVID-19 cases and deaths in Israel

As of 03/28/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

We continue to believe that the third wave of infections should be fairly short-lived. It will likely be vanquished by May via a combination of vaccines and warmer weather in the northern hemisphere. Furthermore, we continue to think that – for developed countries – the latest wave should have fewer hospitalizations and deaths relative to the number of total infections. This is because targeted vaccinations now protect the most vulnerable people.

This last assertion isn’t quite certain given that the new variants appear to double the probability of an infected person needing hospital care. We still believe our prediction to be correct given that vaccinating even just the 15% most vulnerable people should reduce hospitalizations by more than half. But it must be conceded that there are forces pushing in both directions.

One point of lingering confusion on this subject comes from Canadian hospitalization data. The total number of patients hospitalized for COVID-19 has fallen by more than half since the peak of the second wave. Yet the number of patients in intensive care units (ICUs) has fallen by much less. To the extent that the variants increase the likelihood of hospitalization (+100%) by significantly more than the likelihood of death (+60%), it seems strange that hospitals are grappling with a disproportionately large fraction of the most serious cases. One would have expected a surge of middling cases – those requiring hospitals but not likely to kill the afflicted.

One possible explanation is that hospitals may automatically transfer their most ill patients to any available ICU, rather than having a particular threshold of illness severity. As such, a reduction in overall people hospitalized may not translate into a reduction in those put in the ICU.

But this doesn’t fully square with the fact that patients on ventilators also haven’t fallen very much. Nor does that, in turn, square with the observation that Canadian fatalities have themselves fallen quite sharply. It is a confusing state of affairs.

Is the U.S. nearing herd immunity?

Some pundits now claim that the U.S. is on the cusp of herd immunity – reaching the point at which COVID-19 ceases to transmit freely because around 75% of the population has natural or vaccine-induced antibodies against the virus.

We fully agree that the U.S. is well ahead of most countries in this pursuit. This is in part because of its excellent vaccination progress and in part because so many of its citizens became ill with the virus over the past year. However, we believe the U.S. remains somewhat short of herd immunity.

Some statistics provide context. While just 9% of Californian residents have tested positive for COVID-19, nearly 40% are estimated to have naturally developed antibodies. In other words, roughly three out of four infections were never officially diagnosed. In Los Angeles, this figure is even higher, at 45%. Because these estimates were generated in February, the fraction should be higher today.

However, it is unlikely that the entire country is quite so protected. The U.S. Red Cross has calculated via blood donations that around 21% of the entire country’s population had natural antibodies as of early March. This is likely a better guess as to the naturally protected proportion of the U.S. population.

Simultaneously, around 30% of Americans have now received at least one dose of the vaccine, meaning they are nearly immune.

Some pundits erroneously add these numbers together, arguing that between 51% and 80% of the population is immune via a combination of natural and artificial means. But that math isn’t quite right:

  • The highest numbers for places like California don’t square with the national experience.
  • People who have already been infected are also being inoculated. So there is a degree of overlap between the naturally and artificially immune groups.

A bit of rough math argues that perhaps 40% to 45% of the U.S. population is now immune to COVID-19. With caveats that immunity is not permanent (and may be particularly short-lived for those who attained their immunity organically) and that inoculation does not guarantee protection, this means the U.S. is likely over half way to herd immunity. But the country has some distance left to go.

To be sure, this progress is still useful. The virus should spread in the U.S. at less than half the rate it would in a place where no one is protected. In turn, we assume the U.S. will be less seriously affected by the latest wave than most other nations.

Mixed reopening trends

Our global stringency index shows that, while policymakers have opened up their economies somewhat over the past several months, this is now stalling out. Globally, restrictions are no longer being lightened and they remain somewhat stricter than at their easiest last September (see next chart).

Global stringency index

Global stringency index

As of 03/28/2021. 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

These blanket observations mask significant variations at the national (and sub-national) level. For instance:

  • U.S. restrictions are rapidly fading and now quite easy.
  • Canadian restrictions are easing, but remain somewhat stricter than in the U.S.
  • French restrictions remain roughly flat.
  • Italian restrictions have recently become much more stringent (see next chart).

Severity of lockdown varies by country

Severity of lockdown varies by country

Based on latest data available as of 03/21/2021. Deviation from baseline, normalised to U.S. and smoothed with a 7-day moving average. Source: Google, University of Oxford, Macrobond, RBC GAM

The U.S. is a clear outlier in all of this, motivated at least in part by the fact that – even as its infections cease to improve – its hospitalization numbers continue to improve. They are now even lower in some states than during last summer’s lull (see next chart).

State of California

State of California

As of 03/28/2021. 7-day moving average of daily new deaths used as trendline. Source: Haver Analytics, Macrobond, RBC GAM

Many of the Southern and Midwestern U.S. states have removed mask requirements. Many of these states have also now significantly opened their retail, food & drink, personal care, places of worship, entertainment and recreation sectors.

Google Mobility data is particularly instructive in emphasizing the reopening divide between parts of the U.S. and Europe. For instance, Texas retail and recreational activity is now back in line with pre-pandemic norms, whereas this remains down by 47% in France. The gap for transit usage is -4% in Texas, versus -36% in France. The different is much smaller but still evident in trips to workplaces. These are 11% lower than before the pandemic in Texas, versus 14% in France.

Notwithstanding the U.S., we suspect many countries will have to tighten their rules somewhat further to control the latest wave until vaccination efforts gain more traction.

Vaccinations continue to accelerate

Over 535 million vaccine shots have now been delivered globally. The rate of progress varies enormously by country. Israel is well ahead, for example, while others such as Japan are lagging badly (see next table). Many of the world’s poorest nations have not yet even begun.

COVID-19 global vaccine ranking

COVID-19 global vaccine ranking

Note: As of 03/28/2021. Cumulative total doses administered by country per 100 people. Source: Our World in Data, Macrobond, RBC GAM

The U.K. and U.S. remain leaders among large, wealthy nations, with 50 and 42 doses per 100 people, respectively. The European figures are mostly in the realm of 15 doses, while Canada lags at 13 doses per 100 people. Critically, the rate of inoculation continues to accelerate in nearly every nation. The exception is Israel, in large part because it is running out of people to inoculate.

Coronavirus vaccine daily doses administered

Coronavirus vaccine daily doses administered

As of 03/28/2021. 7-day moving average number of new daily coronavirus vaccine doses administered per million. Source: Our World in Data, Macrobond, RBC GAM

The U.K. is a particular success story. It was among the first to grapple with a more virulent strain of the virus. Via a combination of stricter rules and rapid vaccinations, it has nevertheless sliced its infection rate by a factor of 11 and its fatality rate by a factor of 20 relative to its January peak (see next chart).

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

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

As of 03/28/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

It remains surprising that fatalities have not fallen by even more. After all, the most vulnerable people were being vaccinated first. One might have expected the fatality rate to fall by perhaps five times more than the overall infection numbers simply on that basis. In contrast, fatalities have fallen “just” two times as much as the infection numbers in the U.K.

The fact that the new variants are more deadly may help to explain part of this, but not all. For that matter, the more virulent strains were already prevalent in the U.K. during its prior wave. There could still be a lag at work, as we note that the fatality numbers continue to fall even as the infection numbers have now flattened out at a fairly low level.

Economic developments

Suez Canal blockage

The latest unexpected macro shock was the obstruction of the Suez Canal for several days by an enormous container ship. High winds wedged it lengthwise across the narrow channel. The canal is responsible for a remarkable 13% of world trade, including a disproportionate amount of oil, chemicals, apparel, iron ore and manufactured goods. It is a central conduit for European-Asian trade, with European consumers particularly affected.

The canal has since been at least partially unblocked but not before creating a traffic jam of ships and sending some on the long route around the tip of Africa. Reverberations will be felt over the coming days and weeks as ships bottleneck first at the Suez Canal and then at European ports, waiting their turn to be unloaded.

The cost of shipping a standard container of goods had already doubled in parts of the world since last summer due to an acute shortage of containers in Asia and shifting patterns of demand during the pandemic. The price will presumably rise further in the short run.

As such, from an economic standpoint, one might expect slightly higher inflation and slightly lower consumption in Europe over the next few months. These shifts will reflect temporary product shortages and higher shipping costs. But the consequences are ultimately set to be temporary, much as the February winter storm in the U.S. distorted activity there (discussed next) before rebounding in March.

More storm damage

On the subject of temporary economic shocks: U.S. core capital goods orders for February fell by 0.8% relative to the prior month, reflecting temporary shutdowns due to the country’s winter storm. There is every reason to expect a rebound subsequently.

Meanwhile, U.S. personal income fell by a sharp 7% in February relative to the prior month, reflecting a combination of two things:

  1. The winter storm limited people’s ability to work and the demand for their labour. Personal spending was down 1%.
  1. The big $600 stimulus cheques were largely paid in January, creating a 10% jump in income that month.

As such, the latest 7% decline still leaves income somewhat higher than it was two months ago.

Real-time data rebounds in March

We know that this weakness in February was artificial, not just because there were special factors involved, but because real-time activity data has since rebounded with enthusiasm in March.

U.S. credit and debit card spending has surged over the past month (see next chart). Some of this is artificially inflated by recent U.S. stimulus, of course.

U.S. aggregated daily card spending

U.S. aggregated daily card spending

As of 03/20/2021. Total card spending (7-day moving average) includes total BAC card activity, which captures retail sales and services which are paid with cards. Does not include ACH payments. Source: Bank of America COVID-19 and the consumer weekly publication, RBC GAM

More broadly, our real-time economic activity index for the U.S. also continues to accelerate (see next chart). This metric required a great deal of work to update this week because we can no longer use year-over-year percent changes now that the pandemic has persisted for more than a year. Whereas the year-over-year change a month ago was relative to the pre-pandemic norm, the year-over-year change today is relative to the pandemic trough! It is a very different interpretation.

Be on guard for charts that suddenly claim the world is much better than it was a year ago – they are correct, but they no longer provide as much insight into economic normalization efforts.

U.S. economic activity accelerates as restrictions ease

U.S. economic activity accelerates as restrictions ease

As of 03/20/2021. Economic Activity Index is the average of nine high-frequency economic data series measuring the percentage change versus the same period in 2019. Source: Bank of America, Goldman Sachs, OpenTable, Macrobond, RBC GAM

How markets perform across the business cycle

We wrote about the state of the U.S. business cycle back in a February #MacroMemo, concluding that it was at an “early” stage of the cycle.

This week, we add a bit of context as to what that means from a financial market perspective. Historically, median stock market returns have been best at the very start of a new cycle. They then become incrementally less attractive as the cycle matures. They turn negative as the “end of cycle” arrives, then remain negative in the “recession” phase (see next chart). Investors would appear to profit by being most aggressive early in the cycle, then becoming incrementally more cautious over time.

Annualized S&P 500 return ranges by cycle phase

Annualized S&P 500 return ranges by cycle phase

As of 03/12/2021. Source: Macrobond, RBC Global Asset Management. Shaded area represents range. Data from 1949 business cycle onwards.

To the extent that our diagnosis of the business cycle is correct – and that’s a big “if” – it argues that stock market returns should be better than average during this “early” stage. Of course, there are any number of other considerations that investors should also consider. These range from the economic outlook, to valuations, to the recent backup in yields, to inflation fears, to technical factors.

With regard to bond yields, the conclusions are a bit murkier. This is in part because we have been stuck in a 40-year bull market for bonds, which means yields have tended to fall during practically every phase of the cycle.

But the median performance nevertheless differs depending on the phase of the business cycle, demonstrating something of a bimodal distribution (see next chart). For example:

  • Yields experience the greatest upward pressure at the start of a new cycle. This perhaps helps to explain the big selloff in bonds over the past seven months – though that interpretation is complicated by the fact that we now believe the cycle has advanced to the "early” phase.
  • Further upward pressure emerges during “late” cycle as investors grapple with fears of overheating, inflation and central bank monetary tightening.
  • Interestingly, yields fall most sharply during “end of cycle”, not the “recession” itself.

Annualized change 10-year Treasury by cycle phase

Annualized change 10-year Treasury by cycle phase

As of 03/12/2021. Source: Macrobond, RBC Global Asset Management. Shaded area represents range. Data from 1982 business cycle onwards.

Is this business cycle different?

Our business cycle scorecard indicates that we are currently at an “early” phase of the cycle.

But one might argue that financial markets have progressed further than this given the remarkable appreciation in risk assets over the past year.

One might also observe that the business cycle has moved at a frenetic pace, from “recession” to “start of cycle” to “early cycle”, in very short order. Given our forecast that North American economies will return to their pre-pandemic peaks before the end of the year, does that means they could be all the way to “end of cycle” by the close of the 2021? Probably not.

Restoring economies to their prior peak is not quite the same as restoring them to their full production capacity. Economies would have grown over the intervening few years were it not for the pandemic. In turn, economies are unlikely to return to their full potential until 2022 or 2023.

During this time, let us not forget that fiscal stimulus will be expiring, imposing a rather significant economic headwind. That will slow the rate at which the business cycle progresses.

Even then, that does not necessarily mark the end of the business cycle. It is quite normal for economies to operate moderately above their long-run capacity for several years before a recession sets in. That was where the world was prior to the pandemic. For that matter, one of the great surprises before the pandemic was how little actual overheating was occurring, hinting that the economy might have been able to extend the cycle even further before stumbling.

In turn, it isn’t a stretch at all to suggest that “late cycle” might not be a serious discussion until 2024 or beyond, with a recession some time subsequent to that.

In short, the business cycle has moved quite quickly so far, and may credibly continue to advance quickly over the next few years. Perhaps this cycle will be shorter than the decade-plus timeframe that defined the last one. But it is hardly on its last legs – there will likely be years to go.


Many forecasters – ourselves included – had initially expected a housing bust rather than a boom when the pandemic began. Less immigration should have dried up the need for new construction. High unemployment should have put some existing homeowners into financial trouble and deterred some would-be buyers. High risk aversion should have discouraged new home buyers. For these reasons, recessions are almost always associated with weaker housing markets. On top of this, Canada was arguably overdue for a housing correction, having blazed upwards for several decades without serious interruption.

Of course, that’s not what happened. Home prices instead soared, with Canadian single family homes now nearly 25% more expensive than a year ago (see next chart). Condo activity has even begun to pick up again after an initial fallow period.

Canadian home prices surge on demand and ultra-low interest rates during pandemic

Canadian home prices surge on demand and ultra-low interest rates during pandemic

As of Feb 2021. Source: Canadian Real Estate Association, Haver Analytics, RBC GAM

A different set of considerations have proven key to understanding this global housing boom:

  • Mortgage rates didn’t just decline, but fell to unprecedented lows.
  • Low interest rates simultaneously made investing in other relatively safe investments such as bonds less attractive.
  • People have spent a lot of time in their homes during the pandemic, coming to value them more, with a particular premium put on extra space.
  • Because home sales were limited at the beginning of the pandemic, activity has been higher than normal since then as a form of catch-up.
  • People have shied away from small rentals and condos for similar reasons.
  • Households have saved more money for down-payments due to fewer spending opportunities elsewhere.
  • As home prices accelerated, it perversely induced the fear of being left behind, jamming even more prospective buyers into the market.
  • As mortgage rates now rise, this creates its own temporary surge of housing activity as buyers seek to close on deals before their rate guarantees run out.

The Canadian housing market has been particularly wild over the past few months, with detached home prices up 4% in February alone relative to the prior month.

New headwinds?

Where will it go from here? Having defied expectations over the past year, it would be arrogant to suggest this can be predicted with much precision. Our bias is to think that the housing market cools somewhat over the coming year, though not to the point of busting.

As a starting observation, home prices simply cannot rise at 4% per month for very long.

As mortgage rates and home prices have risen, the “deal” that once existed has already vanished. Canadian affordability at the end of 2020 was already as bad as it had been before the pandemic, despite substantially lower borrowing costs. The move in home prices and mortgage rates since then means that housing affordability is now the worst it has been in over 30 years. That could help to cool the housing rush over time.

Home buyers also have to factor in the extent to which mortgage rates might rise over the coming years, hurting affordability as mortgages are renewed.

As the pandemic fades, the obsession with housing and space may decline – both because peoples’ lives will again revolve around offices and other social locations, and because they will no longer be saving so much extra money. Similarly, households may become less focused on detached homes and again embrace downtowns with their condos and apartments. Finally, home sales have already arguably made up for the time lost in early 2020, permitting a reduction to more natural activity levels.

While such data doesn’t exist for Canada, it is notable that home builder sentiment in the U.S. has now become somewhat less ebullient than before, though confidence remains strong.

There are also several lagged issues that could eventually cool the housing market. These include high residential rental vacancies, significant unpaid rent and some ongoing mortgage deferrals.

Policy options

There has lately been a public debate over what might be done to intentionally slow down the housing market. The general consensus is that central banks shouldn’t do anything since other parts of the economy still need help from low interest rates. At the same time, central banks lack sufficiently granular policy levers to significantly influence housing without affecting other sectors.

There are considerably more options in the regulatory space. The recent surge in prices is reminiscent of a flare-up in 2017 that was ultimately quelled by tighter government rules, taking prices in affected housing markets down by 10% over the subsequent year. Here is a list of several potential actions:

  • If the goal is to reduce the number of housing transactions, a larger land transfer tax could work. However, transactional taxes such as these ultimately act as an unfortunate friction that limits the ability of people to move, resulting in longer commutes and houses that are misaligned with need. When combined with realtor costs, Canadians are arguably already overly discouraged from right-sizing their dwelling.
  • Tighter rules around borrowing ratios have been introduced on several occasions over the last few decades. The existing set doesn’t seem unreasonable at preventing buyers from stretching themselves too far, though they could certainly be tightened as a broad tool for cooling demand.
  • Speculation taxes that penalize someone for selling a property shortly after buying it can work, though that isn’t obviously the problem right now – it is primarily people who wish to live in their new home.
  • Vacancy taxes are tricky to administer, but theoretically available for use. However, again, cities aren’t getting expensive right now due to people purchasing second properties (cottages are a different matter).
  • A foreign buyer’s tax is another option that has been used in parts of the country in recent years. However, foreign buyers do not appear to be a key driver in the current market.
  • A capital gains tax on primary residences has been much debated lately, and it is undeniable that homes are nearly unique as an appreciating asset that are not subject to tax in Canada. However, this would be highly unpopular, tricky to phase in, and ultimately greatly reduce the mobility of Canadians given that many could not afford another house after paying the taxes on their prior dwelling’s appreciation. Others might technically be able to afford this, but would nevertheless opt to remain in sub-optimal quarters to avoid it.

One might argue that the most compelling policy solutions are on the supply side of the equation – increasing development within and around cities. Though these measures, too, are unpopular.

Bottom line

At this point, we are not convinced the government is set to introduce major changes to housing market rules in the near term. For the moment, the imperative is achieving economic growth, not limiting it. On the other hand, several natural housing market supports are beginning to fade, potentially permitting an organic cooling.

To play devil’s advocate, one risk to this view is that Canada intends to play catch-up with its immigration numbers after undershooting its target during the pandemic. This will boost the country’s population growth and could spur housing demand over the next several years. Another risk is that interest rates are likely to remain quite low by historical standards, even if higher than earlier lows. A further upside risk is that there isn’t much sign of housing distress right now, as measured by mortgage delinquencies and similar measures.

How have emerging market countries done?

All too often, we have focused exclusively on the world’s wealthiest nations. What about the rest of the world: how have emerging market (EM) countries fared during the pandemic?

Naturally, there is enormous overlap among countries: COVID-19 has been a highly synchronized global event. But have EM countries done better or worse? The answers were not obvious when the pandemic first struck.

From a health perspective, you could easily argue that EM nations should do much worse given their weak public health care systems, lesser access to vaccines and more limited ability to socially distance due to a different sector mix. Conversely, you could argue that the very young populations in these countries should provide considerable protection, that warmer climates should limit the spread of the virus and that some countries should have a degree of cross-immunity. Indeed, one study finds that 19% of Tanzanians were protected due to their earlier exposure to other coronaviruses.

The vulnerability of EM countries was equally unclear from an economic standpoint. The limited fiscal space in these countries, their reliance on global trade, their exposure to commodity prices and their volatile access to international financing all work against them during a pandemic. But their naturally dynamic and fast-growing economies, and limited ability to lockdown, all argue for a superior economic experience.

In the end, it would appear that EM countries have done about the same as developed nations with regard to the virus itself (though with highly varied outcomes, and some debate over the interpretation).  At the same time, EM countries have done modestly better from an economic standpoint.

EM infections and deaths

EM countries have officially tallied far fewer COVID-19 infections on a per capita basis than developed countries. The U.S. and U.K. have done worse on this basis than any major EM nation, with 90,000 and 63,000 officially recorded cases per million residents, versus Brazil at 57,000, Russia at 30,000 and others below that.

But EM countries are thought to have undercounted the true scale of their outbreaks much more substantially than developed nations. The Economist magazine attempts to uncover the true numbers via a tabulation of excess deaths above the usual rate for each country. On this basis, some EM nations have done considerably worse than the worst developed countries. Peru has 36 excess deaths per million people, Russia has 29 and Mexico has 26 – versus the U.K. at 19, the U.S. at 17 and Canada at 3.

The real story is that EM nations span the full spectrum, from worst to best. Brazil, for instance, fares somewhat better than the U.K. and U.S. (10 excess deaths per million people). Some East Asian and Southeast Asian countries have done better than almost any developed countries.

In short, we might conclude that EM countries have done about the same as developed countries at controlling COVID-19, though with a large amount of variation.

EM economic repercussions

It would appear that EM economies have done somewhat better than developed economies across the pandemic. EM growth was 6 percentage points slower than normal in 2020, versus a 6.5 percentage point average undershoot among developed countries. While this makes it seem as though the EM outperformance was very slight, it should be noted that this represents less than two years of lost growth for EM nations, versus more than three years of lost growth for developed countries. As such, the EM economic experience was definitely superior.

Furthermore, going forward, the IMF projects that the economic recovery will be in line to slightly more favourable for EM nations than for developed countries.

It is fairly remarkable that EM countries did not suffer greater damage given that they were unable to provide fiscal stimulus on the scale of the developed world. While there was some variation in the economic experience by region, this was smaller than one might imagine. For instance:

  • The relatively successful EM Asia region slowed by just over 6 percentage points in 2021.
  • The devastated Latin American region slowed by just over 7 percentage points – not a huge difference.
  • The poorest part of the world – Sub-Saharan Africa – actually fared better than most, decelerating by less than 6 percentage points.

Of course, EM countries are poorer than developed countries. As a result, we can say with near certainty that the amount of economic suffering was greater at the individual level there given the number of people in poverty and relatively feebler social safety nets.

-With contributions from Vivien Lee and Sean Swift


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Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index.

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