Economic trends

Macro-economic background and forecasts underpinning insurers attitudes to risk

• Extraordinary policy measures have supported the economy, helping to contain financial stability risks. Despite sparking a slump in global GDP and trade in 2020, the COVID-19 shock did not translate into a wave of insolvencies.
• Global business insolvencies are likely to remain at low levels for the remainder of 2021 but are expected to grow 10-20% during 2022, following two consecutive years of decline, and as a gradual return to the normalisation of the business cycle although still remaining on average at below pre-COVID levels.
• Several European countries and Emerging Markets could see a resurgence much sooner than the US and parts of Asia. Faced with a succession of lockdowns and less generous policy support, Africa should see business insolvencies exceed pre-Covid-19 levels by 2021 itself, while Central and Eastern Europe and Latin America will follow suit in 2022.
• Large support packages and the extension of those measures will likely keep insolvencies low in countries including France, Germany and Belgium.
• The IMF estimates that the first packages of public support provided for 60% of firms increased liquidity needs and mitigated the increase in illiquid firms.
• Actions taken during the pandemic may have unintended consequences such as stretched valuations and rising financial vulnerabilities. The recovery is also expected to be asynchronous and divergent between advanced and emerging market economies.
• Policymakers face a trade-off between boosting growth in the short-term by facilitating an easing of financial conditions and containing future downside risks.
• The phasing-out of support measures has already begun, however, the exact approach around their ending have not always been defined and they sometimes come with new measures to address specific situations to avoid a cliff-edge effect.