COVID-19, coronavirus – whatever you’re calling it around your dining or boardroom table – is about to usher in a global recession from which many businesses will not be able to walk away. Those that are looking to their insurers for help are unlikely to be insured for these losses.
Experts are also saying major cities will continue to remain in a state of ‘social distancing’ and many workers will be confined to their homes at least until the end of May, perhaps even longer.
The markets are going to be waiting nervously for some indication the worst of the outbreak is over before they start to move again. The impact of the pandemic will continue to rock household and business confidence to its core. No one is forecasting a sharp economic recovery immediately after the pandemic ends and everyone we spoke to is expecting lasting damage to the global economy. At the time of writing, government and central banks were moving quickly to take action, but even at this early stage, it is certainly not enough with the European stimulus currently just 1% of the GDP but everyone is expecting announcements in coming weeks.
The long and the short of it, actually just the short of it, is the experts we spoke with all predict every large western economy to be in recession in 2020, starting with a particularly big Q2 hit in the USA. There will likely be a slight recovery in Q3 and Q4 but nothing close to the -12% Q2 dive some banks are modelling.
EMEA remains a bit of an unknown; here the modelling shows flat numbers of around +0.6%. The IMF has liquidity, with $1 trillion available to stimulate these economies, but only if they play nicely within IMF rules. In Latin America, the picture looks dire: 2020 GDP is forecast at -1.6 and Mexico’s GDP is expected to decline a staggering 4.5%.
Across the globe in the Asia Pacific, Hong Kong and Japan are headed into a significant recession. Our experts predict a decline in GDP of -4% and -2.8% respectively. Australia and South Korea are expected to just stay positive at 0.2% and 0.8%. Investors are spooked and are deleveraging everything, with even safe assets being sold for cash and liquidity.
This is a great time for commercial underwriters to start those difficult conversations with clients. While it may be too little, too late, this time around, if ever your clients wished they’d invested in the right kinds of cover it is now. There’s also going to be a raft of liquidations and policy lapses in coming months. Working with clients ahead of the impact may just ensure they’re still around in years to come.