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Belt & Road Initiative: High Time To Belt & Road Initiative: High time to act Dr. Jerome Jean Haegeli Group Chief Economist 14 May 2019, Shanghai Today, Tomorrow and What Is Key… R - R - R Reflation with Central Bank and Fiscal Stimulus Recession fears? Resilience Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 2 Global economic outlook Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 3 10 Years After The Global Financial Crisis… The World Is Less Resilient High debt Negative yielding Lower economic burden sovereign bonds growth +70trn 10trn -2%pts Sources: IIF, IMF, Swiss Re Institute; global figures Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 4 The Three Ps Key To Watch For 2019 And Beyond Prices Policies Politics 2020: High US recession risk at 35% Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 5 Economic Outlook: EM - The Place To Be Emerging Markets will continue grow China has overtaken the US significantly faster than Developed Markets and contributes more to global GDP (PPP) United States: Euro area: 2.5% 1.2% 2018 Real GDP growth in 2019 China: USA 6.3% 2008 China 1998 EM Asia excl. Latin America: China: 2.1% 6.2% 0% 10% 20% Source: Swiss Re Institute, IMF; Note: PPP refers to purchasing power parity for the exchange rate Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 6 Reforms Key Also In China Given High Debt Ratio And Potential Current Account Deficit Share of debt as % of GDP by sector Current Account by component ($ bn) USD 300 600 250 400 200 200 150 0 100 -200 50 -400 0 -600 2001 2006 2014 1999 2000 2002 2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2015 2016 2017 2018 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 1997 CA: net of capital and financial account CA: net of service CA: net of goods Non-financial corporate Government Household CA balance Source: BIS, Ministry of Finance, PBoC, Swiss Re Institute Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 7 Belt and Road Opportunities Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 8 Infrastructure Investment Provides Enormous Opportunities 65 and 2/3 countries and world population affected by BRI 6.4 trn Estimated infrastructure investments in BRI countries 34 bn Premium potential from construction activities Source: Swiss Re Institute Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 9 As Long-term Investors Re/insurers Help Close The Global Infrastructure Gap Infrastructure financing needs until 2030: USD 40trn Advanced economy debt to GDP ratio: 111% Long-term investor asset base: USD 80trn Capital market share of global ~10-20% infrastructure debt financing: Source: McKinsey, OECD, S&P, Preqin, WEF and IIF. Numbers based on latest available data Note: McKinsey estimates infrastructure financing needs at USD 3.3trn/year to support expected economic growth rates. ESG assets available for investments is relative to available pool of investments across asset classes Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 10 The Challenges: Think Global, Act Local Our Call For Action • Strengthen private capital market solutions, lower barriers for long-term investors • Encourage Public Private Partnerships (PPP) • Leverage Multilateral Development Banks’ balance sheets • Promote sustainable investing • “Best practice” pilot transaction for tradable infrastructure asset class, eg with AIIB Source: Swiss Re Institute Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 11 Key takeaways Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 12 Key Takeaways • The global economy is less resilient than 10y ago • The economic shift from West to East continues • BRI offers enormous opportunities for economic growth and to strengthen resilience • Insurance and economic reforms are key recipe to China’s and global economic resilience Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 13 Appendix Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 14 Cross-border infrastructure projects are exposed to a multitude of risks Political Political risks pose a major threat to B&R projects outside China • Geopolitical and territorial disputes • Displacement and social unrest • Concerns about control Economic Operational • Vulnerability to external risks • Corruption and work ethics • Excessive debt, weak • Weak contract enforcement finances Risks in BRI • In-transparent employee • Inflation, Inefficient fund practices allocation Regulatory • Varied legal environments • Environmental issues • Labour regulations and unrest Source: Swiss Re Institute Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 15 BRI will boost development in countries along the “road” and “sea“ routes Stylized view of the benefits of B&R Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 16 Protection Gaps Remain Large For BRI Participant Countries/Markets Protection gaps in USD bn 43 36 33 26 27 178 0 2 4 Europe North America Total: 100bn Total: 69bn 69 44 13 15 Asia Pacific NA 5 5 Total: 304bn Mortality 11 10 3 4 MEA Property cat Latin America Total: 25bn Property non cat Total: 28bn Agriculture Note: Protection gap is a measure of underinsurance. More detailed explanations around the protection gap estimates are available in Swiss Re Institute’s sigma 5/2018 “Global economic and insurance outlook 2020” Source: Swiss Re Institute Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 17 Overview of Swiss Re’s macro forecasts US 2018 2019 2020 2018 2019 2020 Euro Area 2018 2019 2020 2018 2019 2020 Real GDP (% change) CPI (% change) Real GDP (% change) CPI (% change) Swiss Re Institute 2.9 2.5 ↑ 1.8 ↑ 2.4 1.9 2.3 Swiss Re Institute 1.8 1.2 1.2 1.7 1.3 1.5 Consensus 2.4 2 1.9 2.2 Consensus 1.1 1.3 1.3 1.4 IMF 2.3 1.9 2.0 2.7 IMF 1.9 1.7 1.7 1.8 Fed Funds Rate (%) 10y Gov. Bond Yield (%) Refi. Rate (%) 10y Gov. Bond Yield (%) Swiss Re Institute 2.38 2.38 2.38 2.69 2.70 2.70 Swiss Re Institute 0.00 0.00 0.00 0.24 0.40 0.60 Bloomberg Consensus 2.43 2.38 2.75 2.87 Bloomberg Consensus 0.00 0.10 0.35 0.69 UK 2018 2019 2020 2018 2019 2020 China 2018 2019 2020 2018 2019 2020 Real GDP (% change) CPI (% change) Real GDP (% change) CPI (% change) Swiss Re Institute 1.4 1.3 1.5 2.5 1.8 ↓ 1.9 Swiss Re Institute 6.6 6.3 ↑ 6.1 2.1 2.3 2.5 Consensus 1.3 1.5 2.0 2.1 IMF 6.3 6.1 2.3 2.5 IMF 1.2 1.4 1.8 2.0 Bank Rate (%) 10y Gov. Bond Yield (%) Reverse Repurchase Rate 7d (%) 10y Gov. Bond Yield (%) Swiss Re Institute 0.75 0.75 1.00 1.28 1.50 1.80 Swiss Re Institute 2.55 2.50 2.50 3.31 3.20 3.10 Bloomberg Consensus 0.90 1.20 1.5 1.75 Bloomberg Consensus - - 3.16 2.98 Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 18 Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 19 Legal notice ©2019 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation. Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 20.
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