In Vanguard’s midyear economic and market outlook report, the giant investment management firm doesn’t paint a rosy picture regarding the post-Covid economic recovery. It’s not a doom-and-gloom outlook, but it doesn’t provide a lot of warm fuzzies, either.

Vanguard’s report has a chart that defines its baseline economic outlook and its upside and downside scenarios by focusing on health factors. According to Vanguard, health developments are the biggest risk factors for economic recovery. Its upside scenario depends on several elements, including a vaccine becoming widely available in early 2021 and a population that's closer to herd immunity. Vanguard assigns a 15% probability to this scenario occurring.

It puts a 50% probability on its baseline forecast playing out, which entails a gradual, staggered return to work; local virus recurrences that are suppressed by test-track-trace processes; consumers being slow to engage in highly social activities; and an effective vaccine becoming available in late 2021.

The downside scenario comprises a premature rollback of social distancing measures; the re-emergence of both the virus and national shutdowns; Covid-19 mutating into a more virulent form; and delays in vaccine development. Vanguard puts the odds of a downside outcome at 35%.

“Our view of the risks are skewed toward the downside,” Vanguard said in what might be the nut graph of the entire report.

Vanguard noted that the global pandemic created the sharpest and deepest short-term economic contraction in modern history.

“Even as some countries succeed in controlling the outbreak, the case count continues to grow globally,” the company said in its report. “The twin crises of health and economics are far from over.”

Vanguard’s take is that countries that controlled the outbreak early with a combination of swift lockdowns and tracking and tracing features have set themselves up for a potentially quicker recovery. It cited China, South Korea, Australia and New Zealand as examples.

But a virus revival requiring further lockdowns could crimp economic gains in any and all countries that are negatively impacted.

“This debate about health risks versus economic costs emphasizes how the usual uncertainty about the path of recovery for the global economy is amplified by the range of possible health outcomes as defined in our baseline, upside, and downside scenarios,” Vanguard wrote.

Vanguard’s economists and investment strategists who contributed to this report assessed the recovery of the economy’s supply side by delineating sectors into low-, medium- and high-risk categories based on the feasibility to work from home and/or the proximity of workers in the production of the good or service.

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