27.07.20
Euler Hermes World Agency Economic Update
NEWS
In this edition of Euler Hermes' Economic Update, they share their view on how contagion risks apply to markets and on coping with Covid-19 in different ways. They also share a view on Brexit and their Global Insurance Report 2020.
The Covid-19 crisis caused volatility reaching levels unseen since the Great Financial Crisis. Increased tail co-movements between asset classes indicate the presence of a common risk factor: rush for liquidity. Covid-19 showed a completely different contagion pattern and we did an extended analysis for the Tail Risk named Contagious-Value-at-Risk (CoVaR).
Coping with Covid-19 in different ways
In order to fight against the second wave of Covid-19 infections, lockdowns will constrain the recovery pace. The global GDP forecast for 2020 is expected to be -4.7% followed by growth of +4.8% in 2021. In response to the Covid-19 crisis, monetary and fiscal stimulus have been amounting to more than USD18tn in 2020 and markets tend to be dependent on the effectiveness of these policies.
Brexit: Trade tricks won't be enough
After Brexit, the UK intends to lower its global import tariff by -2.2pp to 2.8%, the second lowest tariff among the G-20. The expectations about UK signing a comprehensive FTA with the EU continue. On the other hand, labor costs and productivity matter more for UK. The decrease in immigration is a risk, since it could mean a shortage of skills and higher labor costs.
Allianz Global Insurance Report 2020: Skyfall
In 2019, insurance premiums increased globally by +4.4%, driven by the life segment, but with the sudden Covid-19 crush, the expectation is to shrink by -3.8% in 2020. Covid-19 seems to be a game-changer, but in the insurance industry, it may reinforce existing trends, mainly in Asia, which will emerge faster and stronger from Covid-19 with growth of +8.1% p.a. until 2030.