Swiss Re: macroeconomic resilience still weaker than 2007

Even after strengthening this year from the 2020 lows, global macroeconomic resilience will still be weaker than it was in 2007 before the global financial crisis, according to Swiss Re.

The gloomy prognosis is contained within its latest Sigma report: Resilience Index 2021:
a cyclical growth recovery, but less resilient world economy.

This continuing weakness will make recovery in economic growth itself vulnerable to set-backs, according to Swiss Re, which suggests that from a next steps perspective, structural reforms to improve long-term growth prospects and replenish macro resilience must remain top of the policy agenda.

The Sigma report says that the COVID-19 crisis reduced global macro resilience by 18% in 2020 from 2019, with the advanced economies with higher levels of macro and health insurance resilience before the onset of the pandemic more resilient to the subsequent global downturn than the emerging markets:

“This reflects their greater capacity to deploy more macro resilience resources, notably fiscal stimulus, to mitigate the economic fallout. However, the massive fiscal and monetary policy responses actioned to mitigate the downturn were also the main drivers of last year’s near- fifth weakening in global macro resilience. The stimulus drained advanced economies fiscal buffer capacity by more than half, which in turn led to a more-than-20% decline in those economies’ overall macro resilience in 2020. “

The report adds: “Those advanced economies with higher levels of macro resilience pre-pandemic such as Switzerland and Norway saw stronger growth performance during the last year’s global downturn than others with lower levels of resilience before the crisis hit (eg, Greece and Italy). We expect global macro resilience will benefit from the anticipated cyclical rebound in growth in 2021, which will have the effect of supporting fiscal space. Monetary policy space, however, will likely remain highly restricted as central banks will need to ensure the sustainability of very high levels of debt.”

Insurance Resilience – key takeaways from Swiss Re

  • Expects global insurance resilience to strengthen in 2021, underpinned by

rising awareness of the importance of risk protection, and economic recovery

  • The global composite SRI Resilience Index fell slightly to 54.1 % in 2020, driven by weakening of health and mortality resilience amidst the pandemic shock
  • The global insurance protection gap for health, mortality and natural catastrophe risk rose by 6.3% to USD 1.4 trillion in 2020, amidst the pandemic crisis
  • The global health protection gap widened by 8.1% to USD 747 billion in 2020. The pandemic stressed healthcare systems, particularly in emerging markets
  • With the increase in the global health protection gap, the global SRI Health Resilience Index declined in 2020. Governments absorbed the bulk of the pandemic shock with emergency spending on health. Emerging markets with lower health resilience scores were most vulnerable to the COVID-19 hit.
  • Mortality resilience weakened due to a drop in financial assets and growing household debt. The global SRI Mortality Resilience Index slipped to 45.8% in 2020 from 47.5% in 2019. The decline was most noticeable in emerging markets
  • Resilience against natural catastrophe remains lowest. The global index reading was 24% in 2020, indicating that 76% of all associated protection needs across the world are uninsured

To access the full Sigma report, click here.

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