For the emerging market economic outlook & recovery, vaccine progress is the name of the game

February 15 2021

Alvaro VivancoHead of LatAm Strategy and Macro Analysis

Paul MolanderEmerging Markets Strategy Analyst

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5 minute read

In emerging markets and elsewhere, vaccination progress is the key driver for the macro and FX outlook – one of our big themes for 2021. In this feature, get a deeper look at our new vaccine preparedness index to gain insight on which countries are likely to outperform and which may struggle to recover in the medium-term.

You’ve probably seen a multitude of charts on vaccine rollouts and pandemic responses in recent weeks, so why is this one any different? For starters, we think it can help predict vaccine-driven economic growth and the shape of the recovery.

South Korea, Israel, Chile lead on vaccine preparedness

Our vaccine preparedness index combines progress on vaccination supply contracts & polling data on the willingness to get vaccinated, with the number of available vaccines (adjusted for those that require two doses, of course) across emerging market countries (EM), giving a combined score shown in the table below.

Who’s ready to vaccinate? Huge dispersion in preparedness among select EM countries

Sources: Ipsos, Local Pollsters, Ministries of Health, Duke University, Local Media, NatWest Markets. Index current as of 1 February.

These index scores track vaccine rollout figures very closely – see table below for the how the rollout is progressing thus far – but adds a useful qualitative layer (willingness to get vaccinated) that reveals some divergences. Important caveats aside (we’ll get to those in a moment), the index shows South Korea, Israel and Chile lead the way on vaccine preparedness with almost full “willing-adjusted” recipients. On the other hand, South Africa, Colombia and the Philippines are lagging by a wide margin.

Tracking the vaccine rollout: Israel comfortably in the lead

Sources: Ministries of Health, Duke University, Local Media, NWM Strategy. Note: vaccines are stacked in no particular order. Data current as of 1 February.

Sources of risk and uncertainty (a.k.a. the caveats): qualitative factors are also driving vaccine progress

Our measure of the potential for vaccine-derived growth is quantitative, but it comes with a litany of qualitative risks. We’ve already flagged one of these risks (public perception of vaccines), but here are other key factors that could impact vaccination timelines in EM:

  • Production constraints: Pfizer, AstraZeneca and Sinovac have all experienced production constraints – including in Brazil, where Sinovac’s local production outfit awaits shipments of raw materials.
  • Rollout barriers: access to remote populations and shortages of key equipment like syringes & needles could materially affect the rollout (again, as seen in Brazil).
  • Mutant strains & effectiveness: newer vaccines in the latter stages of development (Johnson & Johnson and Novavax) may be less effective in general and specifically with emerging virus variants. New (and existing) strains may also have more limited protection duration than we believe, possibly leading to higher re-infection rates.
  • Vaccine tracking: governments need robust infrastructure for tracking vaccination progress (especially with two-dose vaccines) but having that in place varies widely by country.
  • Political risk: in some countries, the vaccine rollout has already come up against political barriers and led to rising tensions between different levels of government.

Qual meets quant: four key emerging market trends to watch and economic recovery indicators

Combining insights generated by the index with other macro & policy factors, we think there are four key trends to watch in emerging markets over the near & medium-term:

Israel outperforms, but mobility restrictions will weigh on consumer demand

Israel is clearly in a place of strength – with a positive current account surplus, sizeable portfolio and foreign direct investment (FDI) net inflows, and more recently, leading on vaccine distribution. But increasingly stringent lockdowns due to sharply rising infections means mobility has tightened significantly throughout the pandemic, weighing heavily on consumer demand – and a recovery in retail sales (which has underperformed EM peers since November).

Chile & Brazil: strong vaccinations & stimulus opens the door to rate hikes

Brazil & Chile and are at the top end of the EM universe when it comes to providing a combination of fiscal & monetary stimulus to weather the pandemic (12.5% and 6% of gross domestic product, respectively). That heavy policy response reinforces our base case that their central banks may be closer to hiking rates than others.

Local vaccine production will pay off for Mexico & India (and compensate for soft fiscal responses)

While India’s fiscal policy response to the pandemic has been soft, the sprawling medical manufacturing industry has made it a key player in the global vaccination drive. Local production of the AstraZeneca/Oxford vaccine and the home-grown Bharat Biotech jab have allowed the country to secure enough doses to cover over 1.1bn people. Mexico, which has also been reluctant to mount a meaningful fiscal response to the pandemic, has too been successful in procuring a significant number of doses – partnering with AstraZeneca on local production through a joint venture with Argentina. This will help both economies gain traction more quickly than peers with weaker production capacity.

South Africa & Colombia: downside & dovish risks

We think the risks of outright cuts in Colombia and South Africa are relatively high and could grow if the vaccine rollout lags or new mobility restrictions are introduced (both central banks were divided on whether to cut at their most recent meetings), both of which point to downside risks for growth. Inflation staying below target in Colombia (1.7% year-on-year in December) could hasten calls for additional accommodation there, even if the impact on growth is limited.

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Economic outlook
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