sigma 5/2018: Global economic and insurance outlook 2020

Our main concern is escalation of current US/trade tensions into a global trade war scenario.

Swiss Re Institute estimates that the US economy will grow by 2.9% growth in real terms in 2018, and by 2.2% in 2019 and 1.7% in 2020, as the Federal Reserve becomes less supportive and fiscal stimulus fades. Growth in the Euro area is forecast to slow to 1.5% and 1.4% in 2019 and 2020, respectively, from 1.9%. For Japan, GDP growth of 0.6% is forecast next year, down from 1.0% in 2018, due to weaker external demand. Aggregate emerging market growth is expected to strengthen to around 4.9% annually over 2019 and 2020, after a 4.7%-gain this year. Emerging Asia is expected to outperform.

The still-positive economic momentum will support the insurance sector, with global premiums forecast to increase by more than 3% annually over the next two years in real terms, a one-percentage point increase from 2018.  Most demand will come from emerging Asia, where premiums are forecast to increase at more than three times the global average rate. Innovation in insurance will expand the boundaries of insurability and further drive premium growth. It will also help improve global resilience by narrowing existing insurance protection gaps.

The sigma also addresses the issue of resilience, saying that the world economy remains ill-prepared for a global recession. Swiss Re Institute encourages a move towards more private capital market solutions to remedy the situation, with the public sector promoting financial market standards wherever possible (for example for sustainable and infrastructure investments), state contingent debt instruments for sovereigns, further country-specific structural reforms and less central bank intervention. Insurance is a central pillar of resilience and with a more-supportive policy environment, insurers will be better able to expand their risk-absorbing capacity and long-term investment activities in resilience-building projects such as infrastructure.