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Belt & Road Initiative: High time to act
Dr. Jerome Jean HaegeliGroup Chief Economist14 May 2019, Shanghai
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Today, Tomorrow and What Is Key…
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R - R - RReflation with Central Bank and Fiscal Stimulus Recession fears?
Resilience
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 3
Global economic outlook
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
10 Years After The Global Financial Crisis… The World Is Less Resilient
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High debt burden
Negative yielding sovereign bonds
Lower economic growth
+70trn 10trn -2%pts
Sources: IIF, IMF, Swiss Re Institute; global figures
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
The Three Ps Key To Watch For 2019 And Beyond
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Prices
Policies
Politics
2020: High US recession risk at 35%
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Economic Outlook: EM - The Place To Be
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Source: Swiss Re Institute, IMF; Note: PPP refers to purchasing power parity for the exchange rate
Emerging Markets will continue grow significantly faster than Developed Markets
0% 10% 20%
1998
2008
2018
USA
China
China has overtaken the USand contributes more to global GDP (PPP)
United States:2.5%
Latin America: 2.1%
China: 6.3%
Euro area:1.2%
Real GDP growth in 2019
EM Asia excl. China: 6.2%
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Reforms Key Also In China Given High Debt Ratio And Potential Current Account Deficit
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Share of debt as % of GDP by sector
Non-financial corporate Government Household
-600
-400
-200
0
200
400
600
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99
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Current Account by component ($ bn)
CA: net of capital and financial accountCA: net of serviceCA: net of goodsCA balance
USD
Source: BIS, Ministry of Finance, PBoC, Swiss Re Institute
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 8
Belt and Road Opportunities
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Infrastructure Investment Provides Enormous Opportunities
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34 bn Premium potential from construction activities
65 and 2/3 countries and world population affected by BRI
6.4 trn Estimated infrastructure investments in BRI countries
Source: Swiss Re Institute
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
As Long-term Investors Re/insurers Help Close The Global Infrastructure Gap
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Capital market share of global 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
USD 40trn
USD 80trn
111%
~10-20%
Infrastructure financing needs until 2030:
Long-term investor asset base:
Advanced economy debt to GDP ratio:
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
The Challenges: Think Global, Act Local
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Source: Swiss Re Institute
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
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Key takeaways
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Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
• 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
Key Takeaways
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Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Appendix
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Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 15
Cross-border infrastructure projects are exposed to a multitude of risks
• Geopolitical and territorial disputes
• Displacement and social unrest
• Concerns about control
Political
• Varied legal environments• Environmental issues• Labour regulations and
unrest
Regulatory
• Vulnerability to external risks • Excessive debt, weak
finances• Inflation, Inefficient fund
allocation
Economic
• Corruption and work ethics• Weak contract enforcement• In-transparent employee
practices
Operational
Risks in BRI
Political risks pose a major threat to B&R projects outside China
Source: Swiss Re Institute
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
BRI will boost development in countries along the “road” and “sea“ routes
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Stylized view of the benefits of B&R
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 17
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
36 330 2
11 10 3 4
43 26 27 4
Latin AmericaTotal: 28bn
EuropeTotal: 100bn
15 5 5NA
MEATotal: 25bn
178
6944
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Asia PacificTotal: 304bn
North AmericaTotal: 69bn
Mortality
Property cat
Property non cat
Agriculture
Protection Gaps Remain Large For BRI Participant Countries/Markets
Protection gaps in USD bn
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Overview of Swiss Re’s macro forecasts
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US 2018 2019 2020 2018 2019 2020
Swiss Re Institute 2.9 2.5 ↑ 1.8 ↑ 2.4 1.9 2.3Consensus 2.4 2 1.9 2.2
IMF 2.3 1.9 2.0 2.7
Swiss Re Institute 2.38 2.38 2.38 2.69 2.70 2.70Bloomberg Consensus 2.43 2.38 2.75 2.87
CPI (% change)
10y Gov. Bond Yield (%)Fed Funds Rate (%)
Real GDP (% change)
Euro Area 2018 2019 2020 2018 2019 2020
Swiss Re Institute 1.8 1.2 1.2 1.7 1.3 1.5Consensus 1.1 1.3 1.3 1.4
IMF 1.9 1.7 1.7 1.8
Swiss Re Institute 0.00 0.00 0.00 0.24 0.40 0.60Bloomberg Consensus 0.00 0.10 0.35 0.69
Refi. Rate (%)
Real GDP (% change) CPI (% change)
10y Gov. Bond Yield (%)
UK 2018 2019 2020 2018 2019 2020
Swiss Re Institute 1.4 1.3 1.5 2.5 1.8 ↓ 1.9Consensus 1.3 1.5 2.0 2.1
IMF 1.2 1.4 1.8 2.0
Swiss Re Institute 0.75 0.75 1.00 1.28 1.50 1.80Bloomberg Consensus 0.90 1.20 1.5 1.75
CPI (% change)
10y Gov. Bond Yield (%)Bank Rate (%)
Real GDP (% change)China 2018 2019 2020 2018 2019 2020
Swiss Re Institute 6.6 6.3 ↑ 6.1 2.1 2.3 2.5
IMF 6.3 6.1 2.3 2.5
Swiss Re Institute 2.55 2.50 2.50 3.31 3.20 3.10
Bloomberg Consensus - - 3.16 2.98
CPI (% change)
10y Gov. Bond Yield (%)Reverse Repurchase Rate 7d (%)
Real GDP (% change)
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli 19
Swiss Re Institute – Corporate Solutions | Dr Jerome Jean Haegeli
Legal notice
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©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.
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