The three P's that'll determine the world economy in 2019: Swiss Re

Swiss Re expects GDP growth to soften in most large economies in 2019, according to its latest Economic Insights report. The U.S. GDP growth is forecasted to decline by 0.7% to 2.2%; the Euro area economy to slow somewhat to 1.5%; and China’s GDP growth is predicted to fall to about 6.3%.

The three P’s that will be closely watched in 2019: prices, as inflationary pressures are increasing in the medium term; policies, as central banks transition from quantitative easing to quantitative tightening; and politics, as trade tensions mount. While the outlook is still benign, Swiss Re believes “softer and more diverging global growth is ahead,” while also noting the environment remains upbeat and one of stronger growth for insurance markets in part due to emerging markets powering on.

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Balancing the risks

Swiss Re believes the balance of risk is tilted to the downside with trade tensions being the number one risk to watch. Its baseline scenario assumes a 25% tariff on all goods traded between the U.S. and China and an associated negative impact of 0.1-0.2% points on global GDP growth; these figures could worsen to about 1.5-2.5% points if a full-blown trade war occurs.

Other risks Swiss Re sees are overheating/recession in the U.S. and a central bank policy error.

The still favorable economic circumstances support above 3% growth in global insurance premiums over the next few years. China and emerging Asia are the main engines of growth due to their increasing wealth and insurance penetration. Additionally, the increase in interest rates to date will help insurance profitability through higher reinvestment yields income, albeit very slowly.

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