Hello. My name is Eric Lascelles. I’m the Chief Economist for RBC Global Asset Management.

Welcome to our latest video #MacroMemo. In this #MacroMemo, we’ll cover a range of subjects, including, of course, the latest COVID-19 infection numbers. We’ll talk a little bit about some concerning trends with the virus variants. We’ll talk about vaccine progress, and generally, some very good news there, in fact. And we’ll also discuss the prospect of achieving herd immunity or not; the extent of economic reopening that we’re seeing; and of course, we’ll also wade our way into a variety of economic subjects.

But maybe to summarize, I would say, some pretty good data coming out, particularly for the U.S. right now. We’ll flag some upside fiscal stimulus risks also of relevance to the U.S. And then lastly, we’ll just discuss a little bit some of the longer-term post-pandemic trends that we expect to see, including a little discussion on working from home and another small discussion on the fate of cities. And so lots to cover off. Let’s jump right in. And to begin with, on the infection numbers, the good news and really the key piece of good news out there is that the number of infections and fatalities around the world continues to decline quite precipitously over the last month-and-a-half now. And we can say that globally, there has now been a 52 percent drop in daily cases relative to the peak in early January. In Canada, that’s down by 66 percent. In the U.S., it’s down by 72 percent. In the UK, it’s down by 81 percent. So big, very real improvements have been achieved there. And albeit with a lag, we are now seeing the fatality numbers come down with a similar enthusiasm, and actually, we think they’ll go even further down simply because the vaccinations are targeting the highest-risk people first. And so really good news all around on that front.

However, beneath the surface, and this is not something we can really comment on with much precision because the data is very patchy right now, but it seems as though, as much as the overall number of infections is falling, quite a number of jurisdictions are reporting the number of variant infections, these new, more contagious variants from the UK and South Africa and a few other locations. They seem to be actively accelerating. And so they’re still a fairly small fraction of the total, but they’re growing.

And if you look at what epidemiologists say, many of them seem to think that much of the rest of the world will find that these new strains are the dominant strain as early as March. And so it could well be that is the dominant strain. And to the extent that they are accelerating under current restrictions, that’s a real concern. It seems to me we could very easily, in fact, perhaps we should event expect something of a third wave over the next month or so as those new variants continue to spread.

Let’s be clear. It’s not impossible to control them. The UK and South Africa have managed significant declines in their infections recently, but it has taken, particularly for the UK, a significant amount of economic suffering to get to that place.

As a further silver lining in this rather concerning observation, I can say we think the number of fatalities and hospitalizations should be considerably less. Let’s keep in mind, most vulnerable people are now getting inoculated and so it could be a surge in infections but less so on other fronts. But nevertheless, not ideal, and so something we need to watch very closely going forward. And for Canadians at least we can say, it seems as though Newfoundland has been caught up in something like this already, having nicely controlled the original version but now suffering from the new variant.

I’ll also note, as we dig into the details, as much as globally and nationally there are generally some pretty impressive improvements in the virus, we do see some jurisdictions that have seemingly stopped improving recently, including Ontario and Alberta in Canada; one province in India struggling; Germany’s numbers actually starting to edge higher. And so we’ll see whether this is just a data gremlin. Maybe it’s a post Family Day kind of statistical gremlin. But conceivably, it could be saying something about new variants starting to take over, and that’s been a central concern for quite some time.

Of course, it’s a tug of war between these new variants and vaccines. And the good news is that the vaccination process is continuing. We can now say that more than 200 million doses have been delivered globally. Israel is still leading the way with 83 doses per 100 people. Keep in mind, these are two-dose solutions for the most part, so that doesn’t mean they’re nearly done. That means perhaps they’re nearly half done. The UK is up to 27 doses per 100, which is good. The U.S. is up to 18, which is also quite good. Europe is lagging; it’s around 6 doses per 100 people. And Canada very much lagging at 3.7 doses per 100, but seemingly on the cusp of accelerating, based on a ramped-up rate of shipments recently.

I can say that generally speaking, the vaccine news is quite good. And so for instance, a vaccine optimism is rising in the U.S. context. We track one particular betting market, and as of just a month ago, only a quarter of those betters thought the U.S. would inoculate 200 million people by the middle of this year. That’s now three-quarters, so it’s increased by a factor of three over the span of the last month. And so the U.S. moving faster than expected as of very recently.

I can say the efficacy numbers are also looking quite good. And so, for instance, there’s now more data, mostly Israeli data, in terms of the Pfizer and Moderna vaccine. And after just one dose, they seem to be achieving 92 percent to 93 percent efficacy. So a very high level of protection even without the second dose.

So that’s promising in its own right, but also would seemingly support that one-dose strategy. We hadn’t been sure about that until fairly recently because the initial results hadn’t been nearly that enthusiastic. But with those kinds of numbers, it makes sense to inoculate as many people with a single dose and circle around later. And indeed, when Israel tests with two doses using the Pfizer vaccine, they’re finding a 99 percent reduction in deaths and serious illnesses. So these are proving quite effective.

As with the infection numbers, the risk is the new variants. And so most of them seem reasonably receptive to the vaccines. The South African variant doesn’t seem to be all that receptive, and so that is a concern right now.

I want to spend a moment on herd immunity, the idea that when you get to a certain fraction of the population being immune, the virus just naturally peters out. And so for most of this pandemic, the thinking was you’d need to get to a 60 percent to 70 percent of the population being immune to get to herd immunity, to make the virus truly go away. It looks like that’s going to have to be somewhat higher now, based on these variants which are more easily transmissible. And so it might now be a 75 percent type of protection needed to reach herd immunity.

And I’ll just say, I think that might prove unfortunately a little bit elusive. You can’t at present inoculate children by themselves. They’re 20 percent to 25 percent of populations. You’d need almost everyone else to be inoculated and perfectly protected, and that’s probably not realistic. Some other people can’t be inoculated. Some people will likely choose not to be inoculated. And so that’s a challenge.

And on the efficacy rate, as much as the efficacy seems to be quite high, as per the prior conversation, simultaneously, we can say that against these new variants, particularly the South African one, it seems to be quite a lot lower. And so depending on your scenario and what ends up taking over, it may be that we end up very far indeed from herd immunity. I think we’ll get close; I’m just not quite convinced we’ll get all the way there. And so, unfortunately, that means that probably the virus continues to circulate in a much-diminished form in 2022, and so it won’t be completely gone. It might well be another seasonal illness we need to occasionally think about.

In terms of economic reopenings, well, we are seeing that happen. And so our global Stringency Index getting a little less strict as countries lighten their rules, and so that is helpful from an economic standpoint. One worries, though, that it could be a bit premature, particularly as the new variants seem to be secretly accelerating beneath the surface without enough data to comment precisely.

One idea, though, and something that was quite a popular discussion point last spring and then ceased to be discussed as readily and it’s perhaps time to start discussing again is the idea of an immunity passport. And so Israel is actually doing this. They’re saying that if you’ve been inoculated, you are allowed to do things that people who haven’t been can’t do. You can go into a gym. You can go into a shopping centre; I believe a restaurant as well. And so they are attempting this immunity passport approach.

And it’s logical in the sense that, of course, people who have been inoculated are very likely protected, and so let’s normalize as much as we can, both in terms of number of people and also perhaps from an economic standpoint. And so I can understand why they’re doing that.

I would say I’m not 100 percent sure if we see everyone else follow suit. We might. I think it’s probably not a bad idea, but there are some problems as well. And so for instance, it does certainly punish those who get vaccinated late, often just because they’re not in the first cohorts. And so that seems unfair, as much as I can understand the desire to normalize conditions as much as possible.

Logistically, Israel is famous for having this electronic health care system, and actually they’re using an app to demonstrate immunity. It’s not clear that other countries are in a position to do something quite like that, so that might be hard. I know there’s also a concern that people might be encouraged to get infected to get the passport. That depends on whether they give the passport to people who have been infected or only people who have actually been vaccinated. So some complications there, but let’s watch Israel and see what happens on that front.

Finally, let me pivot to the economic data, which is my job. And so, we can say, quite good for the U.S. And so, for instance, U.S. January retail sales rose 5 percent just in the month, which is a massive number, supported certainly by additional fiscal stimulus. But nevertheless, it looks like the U.S. economy was growing in January. More recently, we’ve gotten a number of purchasing manager indices, classic leading indicators for businesses for February, and the U.S. numbers look quite good. In fact, they don’t look too bad in a fair swath of the world. We think the world probably was growing in February again.

But the U.S. data, also the real-time figures quite promising. We’re seeing hours worked start to rise again, having declined since November. We’re seeing our real-time activity index starting to rise again, having ebbed since November as well. So we’re seeing improvements there. And actually, probably the best GDP tracker out there for the first quarter is arguing the U.S. economy could grow by 10 percent annualized in the first quarter. That’s the quarter when they were supposed to be most adversely affected by the pandemic. So the U.S. economy seemingly doing quite well. And that winter storm that’s affected several U.S. states, including Texas, that’ll dampen that a little bit, but it’s inherently a temporary thing. We should get that back quite quickly.

I should say the Canadian data not coming in quite as strong. It looks like Canadian retail sales fell again in January, having descended notably in December as well. And so Canada takes a little longer to get back on its feet. But it makes sense. We saw a somewhat stricter lockdown, and of course, the vaccination process hasn’t been nearly as fast so far in 2021 either. A quick word on fiscal stimulus. And so we’ve seen big fiscal stimulus from the U.S. already in late December. Joe Biden, President of the U.S., wants to do more in the next few months. His goal is $1.9 trillion, but we and many others had initially thought that probably $1 trillion would be a more realistic expectation. It seems now, just based on the political scuttlebutt, that the number could actually be closer to his number, call it $1.5 trillion or something like that. So that’s a lot of extra money. That’s a lot of money to begin with even before the upgrading. And so that does help the U.S. economy grow. We have an above-consensus growth forecast, but we may well need to revise it a little higher again, just based on the idea there could be yet more fiscal stimulus. There’s even talk of another $2 trillion of infrastructure, though that could be tricky to get through since it would require bipartisan support.

And let me finish just with a discussion of long-term post-pandemic issues, and this is something we’ve revisited regularly, and I think it’s quite important. And I guess I would say, our central thesis is we don’t think there’s going to be that much scarring after the pandemic, so not that much permanent economic damage. And, indeed, we think most things will return to something approaching normal. So we don’t expect all that many. We think most economic variables normalize. People will get to socialize again. All those sorts of things should snap back fairly quickly. Some things might take a number of years. Governments will probably be larger for a number of years, but that should eventually revert to normal. Could be a little more inflation for a number of years, but that should revert as well.

I guess in the end, I would say, though, that when we look at the list of truly permanent things, it’s not that big. And even many of those are probably going to become less intense than they are right now. And so, for instance, working from home, probably more than before the pandemic permanently, but not quite this much, as you look around me. Similarly, from an urban perspective, yes, rural and suburbs right now very popular, but probably a little bit less popular as the pandemic comes to a close. And so we think a lot of even the permanent items are going to fade in terms of influence, maybe the exception being we don’t think the public debt goes away in any major way.

And so just to circle further into working from home, as an example. And so we can say, before the pandemic, 13 percent of people worked even a little bit officially from home. It was up to 39 percent last March working more or less fully from home. Obviously, there’s going to be some retreat. Obviously, in the end, it’ll land somewhere in the middle. But just to emphasize that there will be a significant retreat from this.

And we find very interesting surveys and they say 87 percent of executives in the U.S., I think, think offices are important. Generally, the literature agrees they help with collaboration. They help develop and sustain corporate cultures, which are very important. They certainly help with client interaction; in fact, they’re necessary in many cases. And, indeed, executives indicate they want their workers in the office three-plus days per week. And actually, and this sort of surprises me, but more than half of those polled suggest they plan on expanding their office footprint over the next three years as opposed to shrinking it. And so we’ll see a substantial retreat in working from home, if not a complete one.

And in terms of cities, don’t underestimate the power of urbanization. For 10,000 years, that has been a dominant force behind humanity. Urbanization didn’t stop after the Spanish flu; it didn’t stop after other shocks. People thought it might stop after the invention of the telephone or the computer or the internet, and it didn’t. Cities got bigger and cities were still very attractive places. They are where most high-paying jobs are. They’re where most employers are. They are hubs of innovation. It’s easier for governments to deliver public services. They are the source generally of quality education, quality health care, culture, family, community. And, indeed, we can see that cities and downtowns seem to be reviving in countries that were less adversely affected by the pandemic.

And so, again, I guess the theme is, we could see some differences that endure, but for the most part, a lot of this should ultimately snap back.

Okay. I’ll stop there. Hope you found some of that interesting. And please consider tuning in again next time.