By Greg Ip
The biggest threat to the global economy in a century is mutating--literally.
More-virulent and potentially deadlier variants of Covid-19 first identified in Britain, South Africa and Brazil are spreading, just as the rollout of vaccines had raised hopes for a broad-based economic recovery.
The new variants pose two threats. First, to counteract the higher risk of infection, restrictions on activity may be tightened, pushing some economies back into recession. Britain, where one fast-spreading variant is now widespread, re-entered a full lockdown on Jan. 5. Its economy, which shrank 10% last year, is likely contracting now. The International Monetary Fund said Tuesday it would grow 4.5% this year, down from its October forecast of 5.9%.
The second threat is of a possible new variant that is resistant to the immunity conferred by existing vaccines and past infections, which could trigger a new cycle of restrictions and require a new round of vaccinations.
If such a variant emerges, manufacturers think vaccines can be updated relatively quickly. Nonetheless, James Stock, an economist at Harvard University who has studied the virus and the economy, warned of a "scenario of this thing sticking around for a much longer time frame."
"All the economic adaptations have been viewed as temporary: restaurants at 25% capacity and so forth," he said. "If this were to become chronic there would have to be really massive reorganizations" of the U.S. economy.
Singapore's education minister, Lawrence Wong, who co-chairs his government's Covid ministerial task force, said Monday, "It may take four to five years before we finally see the end of the pandemic and the start of a post-Covid normal."
Mutations are intrinsic to viruses--and economies, for that matter. Financial crises recur because financial innovation eventually circumvents regulations put in place after the last crisis. Similarly, viruses mutate all the time, and natural selection dictates that the variants best able to reproduce eventually predominate.
Viruses, though, mutate much faster than finance. Nearly 300,000 variants of Covid-19 have been detected in the past year, according to a paper by Eduardo Costas, a professor of genetics at the Complutense University of Madrid, and two colleagues.
To gain a foothold, variants such as the U.K.'s must acquire highly advantageous mutations--relatively rare in combination. But as more people in the world are infected, the likelihood grows that new highly infective mutant strains will appear, Mr. Costas said in an email.
"It's like playing the lottery with a lot more numbers," he added.
The U.K. variant, dubbed B.1.1.7, spreads 30% to 70% faster and may be 30% to 40% deadlier than earlier variants, according to scientists. This implies non-pharmaceutical interventions such as masks and social distancing have to be dialed up significantly to keep deaths unchanged. It also means more people must be infected or vaccinated to achieve "herd immunity," when the epidemic dies out.
In Britain, David Mackie of J.P. Morgan estimates, the new variant has raised the virus's reproduction number--how many people each infected person goes on to infect, in the absence of immunity or interventions--to 4.9 from 3.3. Masks, hygiene and social distancing have pushed the reproduction number below one, the threshold at which cases decline. This has come at a steep cost: The British economy is almost certainly shrinking.
Indeed, as the benefits of lockdowns in lives saved are going up, the public's tolerance for them is going down, as recent riots over a curfew in the Netherlands demonstrate. In the U.S., some states have refused to enact restrictions, and most others are targeting only high-risk activities such as indoor dining.
Still, if cases surge again restrictions would likely intensify--and even if they didn't, more people would voluntarily social distance. Either would undercut the recovery. Goldman Sachs estimates a delay in achieving herd immunity would set back the U.S. recovery by two months and trim growth this year by 2 percentage points.
Widespread administration of existing vaccines should snuff out epidemics linked to current variants. But the probability of a vaccine-resistant variant rises with time and world-wide cases.
"This is one reason why it's important not to think just locally but globally," said Alessandro Vespignani, a Northeastern University scientist who models pandemics. "We could have a perfectly rolled-out vaccine campaign in the U.S. and Europe. But if we let the virus go wild and have a lot of cases in other places, that could boomerang--there might be a variant able to escape our immune-system protection."
This puts added pressure on the Biden administration and governments of other wealthy nations to speed up vaccination not just at home but in poor countries as well, to minimize the number of variants. The IMF assumes a vaccine will be broadly available by this summer in most advanced and some developing economies, but not till the second half of 2022 in the rest of the world.
Mr. Vespignani added, "We need an infrastructure in place so that whatever goes wrong, we are much better prepared than in March, April and even now." That means more widespread genomic surveillance for dangerous variants; the capacity to quickly update and administer vaccines to the entire population; and widely available cheap and rapid testing to contain outbreaks.
Write to Greg Ip at greg.ip@wsj.com
(END) Dow Jones Newswires
01-27-21 0814ET
