European economic data is ugly. The UK economy will decline by -35% in 2Q20. Across Europe the data on economic sentiment published today shows record lows. It is a not a surprise then that many European countries including France, Germany and Italy are now slowly easing the restrictions. In the UK, there is also immense pressure on the government. The economic cost and the associated human cost are too high to maintain. A complete nationwide lockdown was always intended to buy time and can never be the optimal strategy. However, there will be political cost from the human losses from “smart lockdown”, which might be more critical for a country such as Pakistan.

There have been a couple of articles (one in the FT and the other in Asian Times) on potential political risk in Pakistan. Pakistani media has been antagonist on the government for quite some while. I am afraid this will make it harder for the government to deal with a spike in infections and casualties associated with it. It is a bad catch 22 for everyone. There is a high human cost of the lockdown. More than 10,000 children have missed their vaccination. There is a risk of spike in deaths from cancer and a rise in TB. These are just direct health related outcomes.

On the other hand, evidence from China, Singapore and recent data from Germany shows that the number of infections will rise again once the lockdown is lifted. This means that the bell curve of normal distribution which we all expect the disease to take will not have that shape. As Andrew Cuomo, the Mayor of New York showed in his presentation, without lockdown, the curve will almost go exponential (click here for the chart). The third option is the Sweden model, of herd immunity. The deaths in Sweden (2000 for a population of 10m) is much higher but they think they will reach herd immunity sooner. The problem with this option is that we do not really know whether there is real immunity from the virus. There is no immunity from dengue and the immunity from flu does not last long. Testing, tracing and quarantine seems to be the only option to buy enough time to get the vaccine. I think 2H20 will be all about the vaccine (just like 1H20 was all about test and medical equipment).

In the UK, Oxford scientists have started human tests for their vaccine. Dr. Sarah Gilbert’s team still thinks that there is 80% chance that they would have the vaccine ready by October. Who gets it first, will be the next race.

I liked this chart of VIX (index for global markets volatility). As expected, the volatility in the markets has declined sharply since the number of global infection cases peaked. The markets will probably spike on any announcement of a successful vaccine.

We pray for the good health of you and your families.

With love,

Ali Farid Khwaja, Faisal Irfan and Team KASB