Just as vaccine progress has brought “light at the end of the tunnel” to the worst pandemic in 100 years, another shadow has emerged.
Economists worry that the new variants of COVID-19 discovered in the U.K. and South Africa could spread beyond their borders and pose a bigger risk to the global economy than thought.
“The key question is whether these two economies are early warning signs for what is likely to happen elsewhere?,” said Oxford Economics’ Ben May in a report yesterday.
The mutations, though apparently not more harmful, are reported to spread faster. Over the past two weeks COVID cases in both countries have surged faster than in most of the G20, prompting the U.K. to implement a third lockdown and South Africa to introduce more restrictions to curb its transmission.
Oxford says the U.K. variant, B117, is estimated to be 50 to 70% more transmissible. During Britain’s second lockdown in November cases of the older version of the virus declined, while cases of the new variant soared. The U.K. now has the highest number of cases per million people in the G20; South Africa is in seventh place.
Britain’s daily COVID death toll hit its highest level since the start of the pandemic Friday and 68,053 new cases were reported.
“The situation in London is now critical, with the spread of the virus out of control,” Mayor Sadiq Khan said. “The number of cases in London has increased rapidly with more than a third more patients being treated in our hospitals now compared to the peak of the pandemic last April.”
Whether this spreads globally and prompts a second world lockdown and double dip recession is the question, but Oxford stresses that it still sees this as just a risk and not a likely outcome. “But the 15% probability that we previously attached to such an outcome now looks too low,” said May.
So how big is the risk?
So far 40 countries have reported cases of the U.K. variant and seven countries, cases of the South African. The big concern is not cases that come from abroad, but cases of so-called community spread. Oxford says reports suggest that there have been possible incidences of community spread in Canada, parts of Europe, the U.S. and Ireland.
“So far, most detected cases have been associated with people recently traveling from the UK or their close relatives. A major caveat is that globally there is limited capacity to test for the mutations. This situation is reminiscent of last March, when official COVID case figures showed a distinctly skewed version of reality,” said May.
There is a chance we have only seen the tip of the iceberg of cases of new variants so far, Oxford warns. The U.K. variant is believed to have been in the country since September, giving it opportunity to spread to other countries before restrictions were put in place.
“Given its high transmissibility, it would be no surprise if clusters of undiscovered cases were discovered around the world,” said May.
The next big question is how big will the blow to the economy be if the variants force a new wave of lockdowns.
Oxford expects the third lockdown in the U.K. (assuming it lasts until mid-February) will result in a 4% drop in GDP in the first quarter. That’s much less than the 19% plunge seen at the pandemic’s onset, but a hit nonetheless for economies hoping to start 2021 with growth.
But if variant cases surge and the world is forced into a second lockdown, the hit to individual economies will be much deeper as trade and financial markets weaken.
Oxford thinks a second global lockdown would knock world GDP to just 1% growth this year, compared to its baseline forecast of 5%.
It’s also doubtful that the policy response would be as large if a second crisis develops, and for many struggling businesses another extended lockdown would be the last straw, May said.