- We believe that a vaccine-driven reduction in hospitalizations is likely to kick offthe growth rebound through relaxed restrictions and some reductions involuntary consumer social distancing. We model the vaccine impact on hospitalizations in the US, where they appear to have peaked–consistent with the projections of our equity research colleagues a month ago–and in the UK, where they are flattening.
- The health benefits from vaccinations should be front-loaded as the 20% highest vaccine priority citizens have accounted for roughly 50-60% of hospitalizations in both countries. So far, around 45% of long term care residents and staff in theUS and 50% of ages 80+ in England have already been vaccinated.
- We construct hospitalization scenarios in three steps. First, we forecast vaccinations by demographic groups using our baseline vaccination timeline and tiering plans. Second, we estimate the historical contribution to hospitalizations from vaccinated groups. Third, we model intermediate, optimistic, and pessimistic scenarios for hospitalizations among those not vaccinated.
- Our simulations deliver four results. First, we estimate that vaccinations so far have lowered US and UK hospitalizations by around 2% and 7%, respectively. Second, we estimate that through April, vaccinations should reduce hospitalizations by nearly one-half in the US and three-quarters in the UK relative to counterfactuals assuming no vaccinations. Third, hospitalizations have likely peaked in both the US and the UK. Fourth, hospitalizations are likely to remain above their early November levels for much of Q1.nRisks to our intermediate hospitalization scenario are mostly to the downside. While recent hospitalization trends are encouraging, slower vaccine distribution, lower demand among priority groups, the accelerated virus spread from new strains, and potentially reduced vaccine efficacy pose significant downside risks. Given the large uncertainty around our simulations, we will be watching regional and demographic data to detect early signs of vaccine-driven health improvements.
- Taken together, this analysis supports our baseline view that vaccine-driven reductions in hospitalizations will help annualized Q2 GDP growth reach 10% in the US and 19% in the UK.
Normally we write about COVID news in the back, but now it deserves front-page coverage; With COVID cases falling and vaccines accelerating, this is probably the beginning of the end of the COVID crisis. Here we argue:
• Renewed restrictions and the end to the holiday season seem to be bending the cases curve.
• The vaccine rollout should continue to accelerate as new resources and effort is put into the project.
• There is one major caveat: new more contagious strains have arrived in the US.
What does this mean for the economy? We continue to see upside risks to our above consensus forecast. We think the vulnerable population will be inoculated by March/April, cutting hospitalizations dramatically, and allowing a partial reopening. Michelle Meyer and team have already boosted their GDP forecast for 2021 from 4.6% to 5.0% based on a somewhat earlier and bigger stimulus package. Moreover, like most forecasters they have not incorporated the impact of a second package.