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Second lockdowns less economic severe than the first


For the third Monday in a row, news of a high covid-19 vaccine efficacy rate helped kick off the trading week on a positive note. Yesterday, AstraZenca announced an average efficacy of 70% across two types of dosing procedures of its covid-19 vaccine, developed jointly with Oxford University. Amid the vaccine discoveries, however, the virus resurgence and renewed lockdowns signal that from a health and economic perspective, the situation is likely to get worse before it gets better.

We have all become too familiar with the covid-19 pandemic implications. With the virus spread accelerating, consumer behaviour has once again shifted, voluntarily or due to reinstated lockdowns. The global confirmed covid-19 cases topped 59 million this week, with the US currently recording the highest rate of case growth per capita. On the other side of the Atlantic, European countries, some of which already into the third week of a nationwide lockdown, have shown signs of improvement. Meanwhile, developed economies in Asia continue to report a low case growth, and solidifying their relative economic resilience during this pandemic.

From an economic perspective, this week’s Purchasing Manager Index (PMI) numbers, a leading indicator on the direction of the economy, presented the first opportunity to measure and monitor the near-term contraction from the virus resurgence.

In Europe the IHS Markit Eurozone Composite PMI retreated to 45.1 from 50 in October, with the below 50 reading indicating a monthly contraction. In fact, this was the steepest contraction since May and mirrors the resurgence of covid-19 cases over the past months. Both the services and manufacturing sectors declined over the month, but needless to say, the services sector remains the most negatively impacted in this pandemic. The Eurozone Services PMI fell to 41.3, the lowest reading in six months, and came in below market expectations.

Keeping in mind the different degrees of lockdowns in place across the Eurozone, ranging between nationwide, partial and more targeted lockdowns, the underlying economic indicators varied within the region. France’s composite PMI came in at 39.9, marking its third consecutive monthly decline in economic activity, and significantly weighed down on the whole region’s PMI numbers. In contrast, Germany, benefitting from its manufacturing tilt, continued to expand with a PMI reading of 52. Even so, on the reintroduction of covid-19 containment measures, its services sector contracted to a reading of 46.2.

Despite that monthly contractions were recorded across the region, this time round, the leading indicators point to a significantly smaller contraction than the first wave experienced last April. Europe’s composite level still stands significantly higher than the 13.6 PMI reading in April. More importantly, the rise in confidence, largely attributed to the encouraging news of vaccine discoveries, runs at the strongest level in more than two years.

In contrast, PMI readings for the US continued to point to a recovery. The US Composite Output Index topped the previous month indicator at 57.9 and marked a broad-based expansion across both services and manufacturing. Underlying indicators, such as rise in new orders, and an increase in hiring also pointed towards growth in the month of November. Similarly, vaccine developments and reduction of election uncertainty boosted optimism to a six-year high.

While the fast and broad-based resurgence of the covid-19 cases leads us to expect a near term contraction, so far, leading economic indicators point to a softer contraction. More so, the emergence of three effective covid-19 vaccines supports the boost in sentiment and raises confidence in a stronger economic rebound when current lockdowns come to an end.


This article was written by Rachel Meilak, CFA, Equity Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd which is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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