The COVID-19 pandemic is expected to reduce global macroeconomic resilience by about 20% in 2020 from 2019 levels as stimulus packages deplete countries' fiscal and monetary buffers around the world. According to the latest annual Swiss Re Institute resilience indices, the UK, Japan and the US will experience the greatest falls in resilience among major economies.
Switzerland, Finland and Canada are the world's three most resilient countries, reflecting their comprehensive economic strength against future crises.
Global economic resilience held up in 2019 compared with 2018, but the world entered the COVID-19 crisis with less shock-absorbing capacity than before the global financial crisis of 2008-09, the last major economic downturn. The Swiss Re Institute Macroeconomic Resilience Index (E-RI) for the world stood at 0.62 in 2019, against 0.61 in 2018.
Government responses to COVID-19 are expected to significantly lower global economic resilience this year. The world index value drops to 0.5 in the initial estimate for 2020, which aims to capture the impact of the fiscal and monetary stimulus in response to COVID-19 on economic resilience.
While such stimulus packages have cushioned the blow to the global economy, they have run down many countries' fiscal and monetary reserves. This has caused their resilience scores to fall, including drops of more than half in some economies, the E-RI found. The research finds that monetary policy buffers will be largely exhausted in most advanced economies, leaving fiscal headroom as
the major determinant of resilience. Of the countries in the top half of the 2019 resilience rankings, the UK, Japan and the US are expected to see their fiscal buffers depleted most and their index scores decline furthest. China's resilience will likely remain relatively unchanged, primarily because a swift response enabled it to reopen its economy earlier than many others. In contrast, Switzerland, Finland and Canada are the world's three most resilient economies.
"The fiscal and monetary stimulus response to COVID-19 was key to cushioning the economic impact of government-ordered lockdowns," Jerome Jean Haegeli, Group Chief Economist at Swiss Re, said.
Insurance resilience against three major risks – mortality, health spending and natural catastrophes – weakened in 2019, the indices show. The combined global protection gap for the three perils is calculated as reaching a new high of USD 1.24 trillion.