Euler Hermes World Agency Economic Update
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.