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Could Global Covid Spikes Derail Consumer Spending?: Week Ahead

Even as the U.S. begins to open up and ease restrictions, global Covid spikes have been on the rise.

The U.K.’s slated June 21 reopening could be in jeopardy after the government tightened its borders this week. The concern is that the Delta variant, which was first detected in India, could be more contagious than the initial variant, now dubbed Alpha, that circulated in the U.K. at the start of the year.

But it hasn’t just been the U.K. seeing spikes from Covid mutations. In April, India faced a severe second wave of Covid-19 cases. And infections are now spiking elsewhere across Asia. China’s Guangdong province has tightened restrictions on movement to curb the spread, and an outbreak in Vietnam’s Ho Chi Minh City indicates that a new variant could be surging there, one that combines the traits of both Alpha and Delta.

Argentina, which saw a second wave of Covid cases in February, is still in the midst of battling the spike that has continued unabated. And on Thursday, the World Health Organization issued a plea for vaccines for Africa, where shipments had ground to a “near halt.” Virus cases have on the continent surged in the last two weeks, leading WHO Africa director Dr. Matshidiso Moeti to state that the “threat of a third wave in Africa is real and rising.”

Cambodia and Uruguay are also beginning to see a rise in cases once again.

Should the recent spikes continue in China and Vietnam, it could add more pressure to the manufacturing supply chain. As Covid infections spread to other cities and restrictions on movement are put in place, that could also impact the local economies as consumers are required to stay closer to home again.

That’s not good news for fashion brands who sell into those markets. Companies that just reported quarterly earnings are seeing improvements in most regions, but several have also cautioned about the uncertainty that lies ahead regarding the course of the pandemic. When Capri Holdings last month posted fourth-quarter results, it also provided guidance for fiscal year 2022—but a caveat was that the projections didn’t include any Covid-related impact on traffic and sales trends from additional store closures or new government restrictions.

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In the U.S., at least, optimism is fueled by consumers flocking back to stores. Retail’s key trade group, the National Retail Federation, is projecting annual retail sales in 2021 to grow between 6.5 and 8.2 percent, the highest growth rate since 2004. And a new AICPA study shows certified public accountants in executive leadership roles are quite optimistic—at 70 percent versus just 47 percent in the first quarter—about the U.S. economy over the next 12 months.  The group of respondents expect 4 percent growth in the year ahead, versus a prior forecast of 1.9 percent last quarter. In fact, their optimism had the AICPA noting that the survey results were the “first time a majority of executives have held a positive sentiment on the economy since the pandemic began in the first quarter last year, and it’s the highest level that measure has reached since the second quarter of 2018.”

There’s good reason for optimism in the U.S. in part due to the success of the vaccine rollout program. Three vaccines—Pfizer-BioNTeech, Moderna and Johnson & Johnson—have been used in the states, with the first two showing an extremely high rate of prevention. Many countries in Europe began their programs with the AstraZeneca vaccine, but saw fits and starts over the rollout due to concerns about health risks. Argentina’s program has made available vaccines from the U.S., China and Russia.

On Thursday, the Biden administration said the U.S. will donate surplus vaccine doses overseas. “As long as this pandemic is raging anywhere in the world, the American people will still be vulnerable,” Biden said in a statement.

Meanwhile, many U.S. businesses are opening up and most schools are planning to open their doors in September. That could bode well for a more “normal” holiday period—and provide a boost to retailers’ fourth-quarter earnings.