After the virus, vaccines are the big unknowable for 2021

After the realities of 2020, do we have even the slightest idea about 2021?

China, the country with the world’s biggest population and first initiator, now ranks 83rd on the list of virus cases. (Photo by Hector RETAMAL / AFP)

A year ago we didn’t have a clue about what would prove to be in store for us through the course of 2020. Do we really have even the slightest bit more accurate idea about 2021?

Back then as we approached Australia Day, barely a month earlier Josh Frydenberg had proudly, confidently, predicted the first budget surplus since Peter Costello’s last in 2007. It of course came in, $85bn or so, somewhat in oh so 21st century de riguer red.

That mid-year budget update was also predicting growth in the economy of 2.25 per cent over 2019-20. The actual figure would prove to be a thumping 6.3 per cent decline.

Indeed, a year ago we were still yet to see the Reserve Bank tell us, in its opening early-February set of forecasts, that growth over the course of calendar 2020 would still be a solid if unspectacular 2.7 per cent. Most recently, in ­November, the RBA forecast negative growth of 4 per cent over 2020.

Both of those forecasts of 2020 — including and especially the “backward” forecast of just last November — were wrong. Growth for 2020 obviously didn’t reach the 2.7 per cent forecast last February. But equally, it has been much stronger than the minus 4 per cent November “forecast”.

We are, in my judgment, likely to actually see slightly positive growth in 2020, or at worst something close to zero. We will have to wait until early March to get the official figures from the ABS.

By the bye, this leaves the RBA with an exquisite challenge. It has to aim to get its now well after the event “forecast” of 2020 right, as the foundation for then setting about to forecast the, in my judgment again, literally still unforecastable 2021.

A year ago, the rise and rise of the sharemarket, both here and on Wall Street, still had some way to go. Wall Street would peak in mid-February and had slipped only marginally a week or so later; and the same of course was the case with our derivative down under market.

Yet in the space of a month through March both Wall Street and we would plunge 37 per cent. Just as unpredictable — and, literally unpredicted — were the spectacular recoveries. In the property market, also.

Apart from the overall message — at this point, statement of the bleeding obvious — that 2020 was unpredicted in anticipation, it largely proved unpredictable even through the year when we supposedly knew what we were dealing with and how we were responding.

Simply, obviously, the virus. And then, the massive fiscal stimulus — here and everywhere — and the QE/MMT money printing and zero interest rates, again everywhere and also here.

My core suggestion is that nothing has changed to render 2021 predictable in the way 2020 clearly was not. In 2020 it was the virus. In 2021 it is the vaccine.

Just as a year ago there was a sort of casual, all-pervasive, blind spot to the developing reality that the virus would totally define and determine 2020, there’s an exactly similar, but exactly opposite, all-pervasive casual assumption about the vaccine.

That it will take us essentially if not entirely, if not seamlessly nevertheless assuredly, back to the pre-virus world of December 2019.

Let us take it as read that the vaccine — vaccines, plural — work in the core medical sense. The issue for 2021 and indeed beyond is that they also have to work in the economic sense.

Simply put, they must enable open borders and not just the banishment of lockdowns but any risk of resort to lockdowns, across most if not the entire world.

“Open borders” does not mean tests and quarantines; maybe it could accommodate proof-of-vaccine 20th century-style. It most certainly does not mean some version of Victoria’s “traffic light” system.

Federal Treasurer Josh Frydenberg. Picture: NCA NewsWire / Andrew Henshaw

That shows the first big, arguably insurmountable, problem about not just the prospects for 2021, but the difficulty if not impossibility, 2020-style redux, of forecasting.

That world will really only be possible if “the vaccine” is distributed pervasively and quickly. The best case expectation is that it is going to take the best part of the year; and it is that “best case” that underwrites the expectation that “open borders” is a subject for 2022, not 2021.

I will only risk two broad scenarios for 2021.

The first, less likely, is that it does work in that crucial economic sense relatively quickly. That would combine with all that stimulus to generate an economic boom way stronger than expectations, while yet further inflating — already over-inflated, bubble territory? — asset values: shares and property.

The more likely scenario is that we don’t get that: that would give us a 2021 that was a, hopefully milder, replay of 2020. In short a combination of anti-virus lockdowns/travel bans and fiscal and monetary responses — starting obviously, from zero rates, existing massive QE and massive deficits.

All I can add is, hmm. Apart from suggesting that would also lead to the same (over?) inflated asset values.

The single most — positively — important thing done last year was JobKeeper; far more important than the RBA’s zero rates and QE which had their biggest impact on asset values.

The Treasurer has done exactly the right thing in tapering and, at the end of March, ending the across-economy JobKeeper. But he may well have to contemplate a more precisely targeted substitute, just as I would hope, we get more targeted lockdowns in any future virus outbreaks.

A final point about 2020 and unpredictability. China, where of course “all this” started, is the one country to have recorded anything close to predicated economic growth through 2020, at 6.5 per cent.

We know because it alone has already reported its December-quarter GDP number.

Believable? I will only note how China, the country with the world’s biggest population and first initiator, now ranks 83rd on the list of virus cases.

Predictability can be all a matter of statistical control.