The COVID-19 Vaccine and the Canadian economy: What you need to know.
Healthcare is more important than ever. The times are changing, and the economy may very well depend on a successful vaccine.
There is now a huge market for the COVID-19 vaccine. Companies across the world are developing a world-changing and intense revenue making product. At the moment, 23 companies are developing the treatment, each publicizing their work, generating revenue and establishing tremendous demand. At the moment, no vaccines have been authorized, so we can’t determine which companies will prevail. However, Canadian authorities have publicized how they predict different producers selling the vaccine will fare in the marketplace.
The Immediate Impact
When the prospect of a vaccine was introduced, the stock market took notice. In particular, when Pfizer and BioNTech announced their strategic alliance and their 95% effective proposal, certain sectors of the economy either experienced a considerable increase or decrease in demand.
As a result, the airline, cruise, movie, and concert industries found significant increases as social distancing protocols could be relaxed over the next couple of years. In contrast, streaming services and online communication stocks faced a significant decline, as it is projected that fewer people will rely on at-home entertainment and virtual meetings.
Both the Joe Biden victory and the sudden release of all these vaccines demonstrate how significant current events are affecting our present economy.
Competition
Let’s talk about competition. There are six large companies in a race to develop this treatment: Novavax, AstraZeneca, Johnson & Johnson, Sanofi & GlaxoSmithKline, Pfizer & BioNTech and Moderna.
Whether it is the massive government purchases like Novavax and AstraZeneca, or the strategic alliances of BioNTech and Pfizer, these companies are using their resources for the better, as seen in the table below:
In business, there are four different types of competition: perfect, monopolistic, oligopolies and monopolies. A quick business refresher:
A monopoly consists of a single seller in a market community through legal and natural resources.
Monopolistic competition is when several companies are selling a differentiated product for the same purpose.
Perfect competition is when several small businesses are selling a standardized product at a standardized market price.
Finally, an oligopoly is when there are very few sellers dominating the market.
Currently, the vaccine market has multiple sellers and so we can eliminate a monopoly, but what about the rest? The current status of the vaccine demonstrates how several different companies are developing a product to save lives. Although this may seem like perfect competition, there is no standardized market value, and some companies are larger than others. Well, wouldn’t this mean it’s monopolistic? Actually, no. From how the economy is working, the consumer buying the products is the government. Thus, we can conclude that the market is an oligopoly because there are very few sellers, plenty of consumer choice for the government, and all products serve the same end purpose.
Relevance
More choice means more competition, lower prices, better products and better services — all of which will serve our country well in the long run.
Well, what is the government doing? There are two types of systems a government can put into effect: monetary and fiscal. In this scenario, the government implemented the expansionary monetary policy, focusing on interest rates and the money supply, in contrast to a fiscal policy. Characteristics of the expansionary monetary policy are that governments would reduce interest rates and increase the money supply in society. This leads to an increase in the economic equilibrium and inflation, all developing a more robust economy.
Long Term Impact
The COVID-19 Crisis has had a significant impact on interest rates. Whether it’s the small coffee shop around the corner or some of the largest businesses in the world, the vast majority of companies have struggled to maintain profitability. These lockdowns are restricting one of the biggest things these companies need to survive: consumers. As a result, due to the expansionary monetary policy, the Bank of Canada has cut interest rates to nearly 0% to help the economy thrive. Due to the functionality of banks in Canada, banks across the nation have cut down their interest rates significantly. A vaccine is coming soon which gives us hope, but its distribution may not happen for 1–2 years. These current interest rates are meagre in size, but they cannot last.
Inflation
Inflation and interest rates have an inverse relationship. This means when interest rates decrease, inflation will increase. This is because a reduction of interest rates would then strengthen and develop the economy, which will increase supply & demand and increase inflation in the end. Thus, during our current scenario, inflation is rising.
This means that the government will now cut spending, increase taxes and increase these interest rates shortly, to contrast the high rates of inflation.
The Future
Borrowers
Borrowers are anyone that use loans for future purposes. Given that these interest rates are meagre, several small business owners are taking this to their advantage. However, these interest rates cannot last and thus, those that have already taken loans must be cautious. Now that we know lockdowns will be lifted soon, there will no longer be a purpose for the government to keep the interest rates at their current level.
Companies
In the end, only a few of the companies developing the vaccine will prevail — what will happen to the companies whose efforts come to be futile?
This all depends on the company’s previous status. Currently, 23 companies are working on the vaccine, but only six developments are leading the industry. Millions of dollars are being poured into deployment, but not all will succeed. In the end, larger companies such as Pfizer and Moderna will return to the status quo in the short term. In comparison, it may be significantly more difficult for smaller companies to redevelop their brand.
Conclusion
Companies around the world are working on a life-changing vaccine. Without a doubt, this will change the way consumers live, hereby transforming the economy. Just as these vaccines were proposed, stocks that were beaten down rose significantly while “stay-at-home” brands declined. To grow the economy, interest rates have been severely reduced. At the moment, these historically low numbers are benefiting small businesses, but these rates will not last in the long-term when a vaccine has been distributed and the fear of contracting Covid-19 has diminished. As Don Pittis, writer for CBC News, wisely said, “For borrowers, the good news is often bad news.”
In the end, whether it is the immense market euphoria or the government’s policies, the hope is that this vaccine will change the world for the better. Our economy and future stand in the balance.
