The UBS Economics Team has been scoring government restriction to contain Covid along 6 dimensions since the start of this pandemic (see the detailed table at the back and the heat map in Figure 17; full history is here). We do this on a 0-10 scale (10 being most restrictive) and this index remains the single best explanatory variable for crosscountry variation in growth—more so than vaccination levels (an R-square of only 0.15 as per Figure 14). With vaccination and mask mandates being the first line of defence in most of the world (particularly ‘the West’), restrictions have been steadily coming down: e.g. in DM from 6½ out of 10 at the start of the year to 3/10 now, with now broadly similar levels of EM and DM restrictiveness. That in turn is mirrored in the Google mobility data which despite the delta variant is near pandemic highs (88% of ‘normal’), though admittedly it has failed to make headway since June. There are some pockets like Europe where mobility has declined since June (Fig 2 below) but these are nonseasonally adjusted data benchmarked on Jan-2020 and summer travel effects are likely impacting the data: e.g. Greece is at 108% of normal but the Netherlands (I don’t have particularly fond memories of Dutch summer weather..) is at 82.5%.
New Zealand, Australia and Vietnam are back in lockdown
The (near) zero tolerance to virus flare-ups in Asia is of course why the region contracted in Q2: we estimate global growth was just shy of 1½% annualized in Q2 but ex Asia it would have been 6.1%. Although restrictions in India and Malaysia are now clearly coming down (Figure 7), we still have Q3 contractions pencilled in for Indonesia, Thailand and Malaysia (and also Australia) due to the measures that have been put in place. But because vaccines appear to be protecting against the worst health outcomes, and because there is little evidence of the delta variant derailing the recovery in the hard data, our forecast largely assume that restrictions outside of Asia edge down a bit further in coming quarters. That would pave the way for 7-8% annualized global growth in the 2nd half of this year.
Meanwhile, day 32,456 under Dictator Dan as the problem in Western Melbourne won’t go away:
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
