Even the most optimistic health experts saw Operation Warp Speed as a moonshot. The $18 billion government program announced in May 2020 sought to accelerate the development, production and distribution of COVID-19 vaccines, diagnostics and treatment. Historically, vaccines have taken years—if not decades—to develop, approve and produce.
But, in just seven months, the first vaccine in the U.S. was given conditional approval. By the end of May 2021—little more than a year after the initiative was announced—more than half of the total U.S population had received at least their first dose of one of three COVID-19 vaccines. The moonshot was a success, and that giant leap for mankind was a significant step forward for the U.S. economy.
"Operation Warp Speed was a great success from a development standpoint," said Matt Stephani, president of Cavanal Hill Investment Management, Inc., a subsidiary of BOK Financial®. He recently sat down with Brian Henderson, BOK Financial chief investment officer, and Steve Wyett, chief investment strategist, to discuss the economic and market outlook.
Stephani pointed out that the initial U.S. vaccine rollout wasn't smooth but that by April, "we were consistently vaccinating over 3 million people per day. That's over 1% of the total U.S. population per day."
According to Wyett, the success of the vaccine—plus aggressive fiscal and policy support by the federal government—has led to significant increases in economic activity. With the reopening of the U.S. economy, unemployment dropped from 15% in May 2020 to under 6% a year later.
The recovery path for the U.S. economy is a good predictor of what should happen worldwide going forward, said Henderson. "Europe was still largely shut down for much of the first half of this year. Japan experienced negative GDP growth in the first quarter of 2021 compared to the positive 6% growth here in the United States."
The acceleration of vaccination trends is going to change all of that, according to Henderson. "Vaccinations are now allowing these developed international economies to reopen and start the rebound from the pandemic, which will support the increased growth overseas."
Like the U.S., Europe stumbled out of the gate due to bureaucracy and questions about the AstraZeneca vaccine, which was at the core of their program. "As a result, their ramp-up in vaccinations has been slower than that of the United States," Stephani said. "In fact, they look like the U.S. did about three months ago."
Wider vaccine distribution will allow the return of Europe's important travel season later this summer, which will be critical to a broader economic recovery, according to Stephani.
"More than 10% of European GDP is tourism and travel related," Stephani added. "So, for Europe to truly recover, they must have a travel season this summer."
The same trajectory is likely for emerging markets around the world, said Stephani. Countries like Brazil, with 10% of the population fully vaccinated, or India, with only 4% vaccinated, are months behind the U.S. and Europe.
Stephani projects that the U.S. will post strong GDP growth in the second and third quarter, followed by a recovery in Europe in the third or fourth quarter and emerging markets late in the fourth quarter or early 2022.
"All that provides this great economic juice for international equity markets to be solid performers over the next 12 to 18 months," he said.
Learn more about the current state of the U.S. economy through the BOK Financial 2021 Mid-Year Economic Outlook.