Euler Hermes World Agency Economic Update May 2020
In this edition of their Economic Update, Euler Hermes share their view on how Brexit Uncertainty Could Jeopardize Recovery and on How Covid-19 Reveals Need For Further Pension Reforms in Germany. They also share their insights on how Covid-19 Affects Global Trade and Capital Outflows From Emerging Markets.
UK: Brexit uncertainty could jeopardize the recovery in H2 2020
UK Q1 GDP fell by -2% q/q, in line with expectations. This release confirms that each week of lockdown cuts output by around -6%. Even before implementing a Covid-19 lockdown on 23 March, the UK economy was already on a weak footing, posting no growth in Q4 2019.
Pensions: Corona reveals need for further pension reforms in Germany
The Corona pandemic renders the German government's optimistic economic assumptions, on which the forecast of the pension contribution rates and the benefit level until 2025 are based, obsolete. With pension cuts prohibited by law, an increase of the contribution rate can only be avoided by depleting the sustainability reserve faster than planned.
Global trade: Covid-19 losses equivalent to a return to 1994 tariffs
Global trade could remain below 90% of its pre-crisis level even after lockdowns are lifted and only recover gradually in H2 2020. We estimate that lockdowns and the uncoordinated deconfinement could cost merchandise trade a loss of US 2.4 trillion, the same as if all countries hiked their tariffs to 17%. Computer and electronics, metal and mining, transportation, electrical equipment and textiles are most at risk of continued supply chain disruption during deconfinement.
Emerging markets: Capital outflows bottomed out but beware of the weak spots
Capital outflows from emerging markets bottomed out in March but could increase again should renewed trade tensions continue. More generally, financial markets have begun to discriminate between rather resilient and more vulnerable emerging markets after withdrawing capital across the board in March when the potential size of the Covid-19 shock was still very unclear.Weaker emerging Markets may prioritize keeping the economy going, risking a high Covid-19 death toll.