One of the industry’s leading economists has said the world after Covid will not return to where it stood prior to the pandemic.
Speaking to the London market Swiss Re’s Chief Economist Jerome Haegeli (pic) said that the pandemic was estimated to cost the world’s economic output $12 trillion and that post the pandemic there will be a new normal.
He said at present the estimates were that the world economy will return to between 90-95% of its pre-COVID level. Mr Haegeli added that it was likely there would be a paradigm shift in the way the world operates.
“At present what is key to the world is the letter R,” he added. “The first thing that comes to mind would be the word recession. We are in the biggest recession of our lifetime; it is like a car crash without an airbag.
“The second R we need to look at is recovery. We will see one and we are already seeing signs of that recovery starting in the second half of the year. HHHowever, we believe it will be protracted.
“Thirdly, and the R which will see our industry play a role is resilience. This will be the most important for the future. We will see future recessions and recoveries, but we need to have the resilience to absorb those recessions and aid the recoveries.”
Mr Haegeli said there have been ever more protracted recoveries in recent recession and there is every likelihood that the current recession will see a similar protraction.
However, he warned that while the recession may well be the shortest and deepest on record, “we shouldn’t underestimate the longer term economic and political impacts”.
Going forward he warned that the rise in nationalism across the world meant that globalisation had reached its peak and that in the future we will the emergence of parallel supply chain as the ongoing trade wars will see the end to the “just in time” supply chain with risk managers looking to ensure they not over exposed to the global supply chains.
Digitalisation will grow in importance which will have a beneficial effect fort the insurance industry, driving underwriting and claims efficiencies, enhancing the abilities for future insurability.
However, Mr Haegeli warned that is past cases when governments have been forced to take significant action to support economies and businesses, they have been slow to remove themselves from the market.
“I would like to see a plan of how government interventions plan to manage their exit from those interventions,” he added. “It is necessary to ensure that capital markets and business can remain dynamic.”
Mr Haegeli warned: “Unemployment will increase and for the economy there is nothing worse than a jobless consumer. We are also set to see an increase in the levels of business defaults and bankruptcies.
“We have to understand that once we emerge from the effects of the COVID virus the new normal will see the global economy running at between 90-95% of its pre-pandemic levels.”