Delta variant's rise brings new uncertainty to the economic recovery

July 15, 2021: -The rapid delta variant spread has clouded the growth outlook, strategists are warning, but it’s too soon to tell how markets will react.

France, the Netherlands, and Spain have now introduced new restrictions on Monday to curb increasing cases of the highly transmissible variant. In contrast, the U.K. has committed to a leap of faith and lifting its final phase of Covid restrictions before July 19, despite rising cases.

On Monday, in a research note, Oxford Economics said that while global Covid cases remain low, the number of economies reporting sequences of the delta variant had increased up to 89, with a growing number identifying it as the dominant strain. It is detected in over 100 countries.

Ben May, Oxford Economics’ director of Global Macro Research, said market concerns about the impact of the variant on the global economy were “warranted,” which warns that vaccines would not ensure a path to economic normalcy.

May said the sharp surge in the U.K., where the vaccine rollout has been a renowned success, indicates that the new strain will “wreak havoc” on emerging market economies with lower advanced inoculation programs.

However, he suggests that given the low hospitalization rate, “exit waves” may be a “necessary evil” for economies that plan to reopen without the majority of the population having complete vaccine protection.

“Nonetheless, if economies reopen and allow cases to increase, the economic gains could prove illusory if Covid-related absences trigger major disruption to businesses and higher cases prompt greater voluntary social distancing,” May further said.

“Ongoing developments in the U.K. could provide more insight into this risk. But for now, the evidence is inconclusive,” May added.