Reinsurer warns of Recession as Covid-19 Crisis Grows

Swiss Re has warned the world is set to plunge into recession as governments across the world battle to contain COVID-19.

The reinsurer’s Group Chief Economist Jérôme Jean Haegeli (pic) made his comments following the firm’s decision to revise its global economic outlook in light of the spread of COVID-19, the illness related to the current SARS-CoV-2 coronavirus epidemic:

“Our latest research is out, and the projections we made in the beginning of the year have changed considerably,” he said. “The current coronavirus outbreak is hitting the global economy when economic resilience is already weak to start with, and we now anticipate a global recession in 2020.

“We forecast global growth slowing down to well below 2% this year from 2.2% in 2019, with a deceleration in particular in Japan and the Eurozone. The risk of both a US recession and a China hard landing has also risen to a very high 40%, with US growth in 2020 now revised down 50 basis points to just 1.1%
“While in China the spread of the virus appears to have peaked, Italy has just been placed on lockdown, and we anticipate the situation to get worse in the US and much of Europe, before it gets better. Globally, risks remain to the downside, with a high likelihood of major economic reverberations throughout the remainder of the year.

In the UK the financial services market has welcomed the Bank of England’s efforts to spur the economy but warned that the sector will feel the pain if the economy suffers a serious impact.

John Liver, Financial Services Partner at EY said: “The financial services industry plays a central role enabling the economy to work. It is keen to support customers, their staff, and the broader economy through what is likely to be a challenging period. Institutions have announced measures to support customers who may have significant short-term financial difficulties, and are implementing a range of business continuity actions to ensure they can continue to serve customers in the face of possible disruption. The facilitating measures announced by the Bank of England today demonstrate that the authorities recognise the potential impacts and are playing their part; they will be welcomed by the industry.”

Karim Haji, Head of Financial Services, at KPMG UK said: “The Bank of England is taking swift and decisive action to provide stimulus for the economy, the likes of which we’ve not seen since the ’08 crisis. It’s package of measures should free up £200 billion of lending, to put that in context, it is 13 times the net lending that took place in 2019. This morning’s announcement will help encourage lending and spending, if this is coupled with tax breaks and infrastructure investment in this afternoon’s budget then that would be a very positive day in the office for the guardians of our economy.

“However, even if that does materialise, let’s not underplay the challenge. A huge proportion of UK businesses face significant cash flow pressures and without cash firms can’t survive for long. Thanks to a decade of scrutiny around banks’ capital resilience and rigorous annual stress tests, the finance sector is in a good position to help but it won’t be a comfortable journey. Banks’ margins are already squeezed, asset managers are especially vulnerable to the current market situation and insurers face the potential double hit of increased claims and decreased portfolios. It is also worth noting that some of the real-life market shocks we’re now seeing are more severe than several of those banks have been subjected to in regulatory stress tests.

“And finally, our finance sector and covid-19 are global whereas these measures aren’t, they may have proved more impactful as part of a coordinated global response from central banks.”