The dismantling of COVID-19 restrictions begins – still great uncertainty in the economic outlook

The spread of the coronavirus disease 2019 continues, but the peak of infection appears to have been passed in many parts of the western world. The number of confirmed infections worldwide has risen to more than 3.5 million and the number of deaths is now approximately 250 000.



In the past few weeks, we have seen something of a trend reversal in new infections and a gradual stabilisation of death rates. This has intensified the demands to lift the draconian measures aimed at limiting the spread of infection. In Europe, the dismantling of restrictions has started almost on an experimental basis, with smaller shops, primary schools and day care facilities allowed to open. A return to work has also been allowed for certain categories of industrial workers. Some observers, however, now expect that the relaxed measures will be reflected in infections increasing again.



In addition to a clearly visible fall in the number of new infections, the gradual, orderly opening of society - in a way that prevents a new acceleration - requires extensive testing capacity and the ability to track and isolate the infected. Indeed, insufficient testing capacity now seems to inhibit the otherwise clear willingness to dismantle restrictions.



The spread of an epidemic will slow down by itself, when a sufficient proportion of the population has acquired immunity due to exposure or vaccination. Virus protection is generally expected to be achieved when approximately 60–70% of the population has immunity.


Although the number of confirmed corona infections is very low in relation to the population, asymptomatic cases or those with only mild symptoms are now known to be a large proportion of those exposed but have not been tested. The actual number of infections can therefore be many times higher than the official figure.


To clarify this, so-called antibody tests have been carried out in different countries to establish whether an individual has been infected with coronavirus. So far, perhaps the most reliable corona antibody survey was performed in New York State about two weeks ago. According to the test, approximately 14% of the state's population and as many as 21% of New York City population had detectable antibodies at the time of testing. New York State has a population of about 19.5 million. So, according to the study, about 2.7 million of them would have been infected. It is noteworthy that the official infection rate in New York state is only 295 000. (Source: New York Times)


As antibodies emerge with a delay of a few weeks, the current, actual time-adjusted share of the population with antibodies is estimated to be around 25-30% in New York State and as much as 40% in New York City (Source: SpareBank Markets).


Although these figures are not yet sufficient to achieve herd immunity, they show that in the worst-impacted areas, a significant proportion of the population has already contracted the disease, with the likely introduction of herd immunity. On the other hand, in many countries where the epidemic has been brought under control, the achievement of herd immunity is still far away.



Vaccine development projects are also progressing. Last week, the New York Times reported on a promising research project at Oxford University that has already advanced from animal testing to human testing. A team of researchers estimated that if the tests show that the vaccine is working and is safe, its production could start as early as September. In practice, large-scale vaccination could therefore perhaps start as early as this year.


The hope of more effective drug treatments has been kindled by the positive results of clinical trials of remdesivir. Based on tests in the United States, the recovery time for patients with severe illness was reduced by approximately 30% compared to the control group in patients treated with the drug. Based on clinical testing, the Federal Drug Administration (FDA) granted a marketing authorisation for remdesivir on 1 January 2007. May. The European Medicines Agency (EMA) has also started studies on the use of remdesivir in the treatment of coronavirus. Remdesivir is a medicine originally developed by Gilead Sciences, Inc. for the treatment of Ebola.



Since the beginning of the explosive spread of coronavirus in March, the western world has largely been able to halt the further escalation of the spread. In many places, the most draconian measures have already been lifted and additional relief can be expected as testing capacity increases.


If the dismantling of restrictive measures is carried out rationally based on recommendations from the health authorities, many of the coronavirus related restrictions in the western world can be phased out during the summer. However, this requires constant awareness on the part of all citizens, such as frequent hand washing and maintaining distance.


However, it is likely that in many countries or regions, the spread of coronavirus will accelerate again when constraints are dismantled. It is therefore essential for the continued management of the crisis to understand how effectively new potential sources of infection can be monitored and curbed, thereby preventing another large new wave of infections. The second wave of the virus would be particularly devastating in economic terms, as it could induce further restrictions and retaliations, thereby prolonging its duration and overall negative economic impact.



The forecasting of the economic situation is currently very intricately linked to the development of the coronavirus situation and is therefore subject to great uncertainty.


The currently popular way to express different economic scenarios has become the use of the letters V, U and L.


In the V option, the economy is assumed to dive hard at first, but when the situation calms down, it quickly returns to almost normal. In the U option, it takes longer to calm the situation and recovery is not as fast. If the lower edge of the U lengthens too much, it becomes an L, which means prolonged weak economic development.


We believe that, in the early stages of the epidemic, the market consensus assumed a V-shaped scenario, encouraged by the example of China. However, it has slowly become clear that the impact of the crisis in the western world will be much more serious than in China, where the reaction of the authorities was rapid and forceful, and which apparently has allowed the virus to be suppressed there almost at once.


By and large, the western world did not initially believe in the danger of the coronavirus, and it was hoped that the virus would not have a significant impact on the economy. With hindsight we now know, based on the large number of deaths, that the virus spread much more aggressively than it appeared to do in China. As a result, the complete interception of the virus in the West will be much more demanding than in China. Instead of a quick but short-term economic stop, western countries obviously must struggle longer with various economic constraints.


Earnings Season Moods


Corporate earnings for the first quarter have now been announced for the most part, and earlier forecasts for the period seem to have been impacted less than feared. Of course, the prospects for companies are foggy; dividends have been cut or postponed, but this have already been known on the market. The Covid-19 crisis did not significantly influence the results of the first quarter – the biggest negative effects will be visible in the coming quarters. Profit forecasts continue to trend downwards and all forecasts for 2021 are obscured. However, the dismantling of coronavirus restrictions and the partial opening of economies weigh more on investor expectations than the weak economic numbers in the immediate future.


Technology companies and healthcare have been the best survivors of this crisis. In the United States, the technology-driven Nasdaq index in particular has recovered almost to the levels at the end of the year, and the S&P 500 index (where technology and healthcare already represent about 40% of the index) is only ten percent below the year end levels. The financial sector, which suffers from expected credit losses, and the energy sector, suffering from a collapse in oil prices, have led the fall. This has been particularly evident in European indices, where the above-mentioned sectors are strongly represented. The gap between the United States and Europe has continued to grow.


The forest cluster, which is important to us Finns has done well in the corona crisis. Although the sector is cyclical and the outlook is weakened because of an expected GDP decline, the underlying megatrends continue to strengthen. The growth of online trade benefits board manufacturers and the emergence of a middle class in many parts of the world as well as demographic trends increase the demand for tissue paper. Long-fibre pulp from the northern coniferous forest zone is increasingly needed to produce the above-mentioned end products.




The sources of the market review have been: Bloomberg, Financial Times and, as well as statistics from the National Institute for Health and Welfare (THL). The information presented in this review is based on the information that the company deems reliable. However, UB is not responsible for the accuracy of the data and for any damage or loss caused using the data. The laws and other regulatory provisions of several states may restrict the sharing of the information contained in this review and therefore anyone who consults the review is responsible for determining if they are required to comply with the content of any laws or regulations that may apply to them. The information presented is not an offer to sell or market subscriptions of an investment product in countries where the offer would be contrary to law or government regulations. No information presented in the review should be considered as investment advice or a trading recommendation as such. When making investment decisions, the investor must base his decision on his/her own assessment and consider his or her own objectives and financial situation. There are always risks associated with investing and financial instruments. The value and return on investments may change and the capital invested may be lost in whole or in part. Historical developments do not allow a reliable estimate of future returns.