Macro-economic background and forecasts underpinning insurers attitudes to risk
- The OECD is projecting 5.8% global economic growth this year, a sharp upwards revision from the December 2020 economic outlook projection of 4.2% for 2021. The vaccines rollout in many of the advanced economies has been driving the improvement, as has the fiscal stimulus by the United States. World GDP growth is expected to be 4.4% next year but global income will still be some USD 3 trillion less by the end of 2022 than was expected before the crisis hit (USD 3 trillion is about the size of the entire French economy).
- Differences in the strength of economic recovery across countries are being driven by i) the extent of government support to vulnerable businesses, ii) a country’s dependency on particular sectors such as tourism, as well as iii) by public health and vaccination policies.
- Consumers have been spending less on services and more on goods since the pandemic began. The pick-up in merchandise trade has benefitted countries heavily involved in supply chains, particularly pharmaceuticals, medical supplies and IT material.
- Contrary to expectations and previous years, insolvency levels were kept artificially lower in 2020. Avoided insolvencies include non-cyclical failures which occur every year, the majority of which are now expected to emerge in 2021 and into 2022 as government support measures are phased out.
- Based on 2021 market data, the number of major insolvencies has continued to decrease, however, there has been a sharp increase in the (average) severity. Most affected sectors include services, energy and agrifood.
- The significant government spending in response to the COVID-19 pandemic is raising concerns of rising inflation which then may lead to increased interest rates, with a negative impact on highly leveraged companies refinancing their debt burden and leading to an increase in bankruptcies.
- In 2021 more than ever, it is crucial that credit insurance policyholders remain vigilant towards understanding and adhering to the terms of their contractual arrangements.
Real GDP, Q4 2019 = 100, pre and post COVID-19
Source: Eurostat, Allianz Research
Insolvency Index, yearly level, base 100 in 2019
Source: National Sources, Euler Hermes, Allianz Research