Entering 2021, Wall Street's biggest "worry" seems to be: everyone is too optimistic! Both economic fundamentals and market forecasts show this strong optimism everywhere. But Jan Hatzius, chief economist of Goldman Sachs Group, expressed concern in a lengthy report over the weekend that the market may have been wrong about consumer spending and economic recovery in 2021.

Other downside risks remain, "including uncertainty about how consumers respond to ongoing risks and how new virus mutations affect virus transmission and vaccine effectiveness," Jan Hatzius said in the report. He explains the impact of potential downside risks by the extent to which the virus mutates.

First, the effects of viral mutations are not taken into account, but consumers may be more cautious than they think.

Even vaccines and warmer weather effectively reduce the spread of the virus and reduce the rate of infection. Some "virus-sensitive" industry activity may still be lower than before the novel coronavirus outbreak, especially for more high-risk groups. These factors may dampen the extent of the outbreak of consumption.

In this case, however, there is no need to worry too much about consumer spending. Consumer surveys and consumer flexibility so far suggest that this downward trend may be limited.

Surveys have shown that mass vaccination will greatly increase consumers' willingness to resume virus-sensitive activities, and the experience of other countries with more effective control of the virus has shown that once infection rates decline, virus-sensitive services can be quickly normalized. In addition, Goldman Sachs Group's tracking of economic recovery shows that although the spread of the virus is very serious in winter, the only reduction in consumer spending is not exaggerated.

Second, virus mutation reduces the effectiveness of the vaccine and delays economic recovery.

Goldman Sachs Group said that the "more worrying downside risk" is that the virus mutation significantly increases the threshold of population immunity because the mutated virus is more contagious or reduces the effectiveness of existing vaccines. This could delay the global date of achieving a significant reduction in group immunity and viral risk, thereby delaying the consumption boom.

Assuming that the infection rate is R0, it is defined as the number of new cases per case transmitted among people who have not seen the disease before, and the relationship between the effectiveness of the vaccine and the population immunity required to achieve "group immunity" in a stylized model.

For example, if R0 is 2.5 and the average protection rate of infection and vaccine is 80%, achieving mass immunization requires 86% of the population to be immunized, which is obtained through infection or vaccination. With the increasing awareness of efficacy, the demand for vaccines may increase, but achieving very high vaccine coverage may be a challenge. However, if the efficacy of the vaccine against the new strain is low or the efficacy is uncertain, vaccination is further hampered.

In the case that the virus mutation significantly increases the population immunity, the virus transmission will maintain a fairly high level for a longer time, and the consumption boom may be delayed and weakened. Suppose the boost to the recovery in service spending was delayed by two months due to a delay in reaching group immunity, and then the growth in service spending was 30 per cent slower than Goldman Sachs Group's baseline forecast.

Third, the most serious downside risk is the evolution of vaccine-resistant strains that require a new vaccine and another round of vaccination. Spending on virus sensitivity is likely to shrink as new vaccines are developed, and although the new vaccine is likely to be approved in less than five months, the consumption boom is likely to be delayed until 2022.

Fortunately, prima facie evidence suggests that the effectiveness of the current vaccine has not diminished in response to the British strain.

However, the results of the South African strain are not very optimistic, and the test results are more complicated. What is known is that two early studies have shown a decline in the effectiveness of existing vaccines against South African mutated viruses. Experts were careful to interpret the results, which Dr. Richard Lessels, the lead author of one study, described as "likely" to decline "slightly" in effectiveness. At this point, it seems unlikely that the vaccine needs to be adjusted to remain effective against any new strain.

In addition to the currently known risk of virus mutation, almost all experts expect that vaccine-resistant strains may evolve, although the mutation will not occur immediately.

Goldman Sachs Group also wrote at the end of the report that in the United States, epidemic data have been highly "politicized." for example, on the same day as the new president, the number of hospitalizations showed a record decline. So for political purposes, the third risk, that is, the "anti-vaccine virus strain" is likely to appear in the United States in the summer, not only to extend the blockade until 2022, but also to make Congress and the Federal Reserve pay politically for more trillion dollars in national basic income.