The COVID-19 pandemic is expected to increase global macroeconomic resilience by approximately 20% through 2020 from 2019 levels, as stimulus plans deplete the fiscal and financial buffers of countries around the world.
At the same time, the overall combined coverage hole for key hazards is reaching a new record.
According to the most recent annual resilience rates of the Swiss Re Institute, the United Kingdom, Japan and the United States will revel in the biggest drops in resilience among major economies. Switzerland, Finland and Canada remain the world’s 3 countries with the highest resilience, reflecting their overall economic strength in the face of long-term crises.
Global economic resilience has withstood from 2019 to 2018, however, the world has entered the COVID-19 crisis with less impact absorption capacity than before the 2008-09 global monetary crisis, the last primary economic recession. The Swiss Re Institute’s Global Macroeconomic Resilience Index (E-RI) stood at 0.62 in 2019, up from 0.61 in 2018.
Key results:
Government reactions to COVID-19 are expected to particularly reduce global economic resilience this year. The price of the global index falls to 0.5 in the initial estimate for 2020, which aims to capture the effect of fiscal and financial stimulus in reaction to COVID-19 on economic resilience.
While these stimulus packages cushioned the blow to the global economy, they have depleted the fiscal and financial reserves of many countries, leading to a decline in resilience scores, adding falls of more than one share in some economies, found E-RI. The analysis shows that financial policy buffers will largely run out in economies of maximum complexity, leaving fiscal leeway as the main determinant of resilience.
Among the most sensitive portion of the 2019 resilience rating, the UK, Japan and the United States are expected to see their tax mattresses fully drained and their index scores minimize the maximum. China’s resilience is probably maximum to remain unchanged, basically because a quick reaction has allowed it to reopen its economy earlier than many others. On the contrary, Switzerland, Finland and Canada are expected to remain the 3 most resilient economies in the world.
“The fiscal and financial stimulus reaction to COVID-19 has been essential to cushion the economic effect of government-ordered closures,” said Jerome Jean Haegeli, Swiss Re’s leading organizational economist. “However, the truth of wartime spending is that it leaves much less room for long-term political maneuvers.”
He said the main threat of economic policy was that such governmental transitional measures would become permanent, leaving economies dependent on the recovery ongoing. “It will be imperative to focus on rebuilding resilience by restoring fiscal and financial buffers through structural reforms for the long-term expansion prospects,” he added.
Insurance resilience
Insurance resistance to three main dangers: mortality, fitness spending and herbal mistakes, has weakened in 2019, by indexes. It is estimated that the combined total coverage hole for the 3 hazards will reach a new high of $1.24 trillion. Globally, mortality resistance has declined further, due to a growing mortality coverage hole in the Asia-Pacific region, where China’s coverage hole has expanded due to the immediate expansion of family debt.
Health resilience has remained strong despite some deterioration in emerging markets. The global fitness coverage hole expanded by more than 5% to $588 billion. Resistance to herb-based errors ruins the lowest of the 3 threat areas. The Swiss Re Institute expects gaps in health and mortality coverage to widen as families grapple with declining incomes, higher fitness prices and the monetary consequences of loss of family support as a result of the pandemic.
“The growing global coverage hole is a great opportunity for insurers to fulfill their mandate as threat absorbers and society’s resilience,” Haegeli said. “In times of crisis, families want coverage against threats. Insurance is a key tool to help families reduce their monetary vulnerability in disruptive environments.”
The Swiss Re Institute presented its Macroeconomic Resilience Index last year, rating countries in a wide range of variables to provide a much more holistic assessment of economic fitness than gross domestic product alone.
The institute has also developed insurance resilience rates to assess how insurance is helping individuals, families, and organizations address unexpected scenarios in 3 key areas: herbal disasters, mortality, and health care.
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