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Emerging Markets: The Engines Of Growth Media Round Table, Hong Kong, March 7 2019 Dr Jérôme Haegeli, Group Chief Economist
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Page 1: Emerging Markets: The Engines Of Growth2f60f9cd-4de8-42b9... · Emerging Markets > Developed Markets 4 Source: Swiss Re Institute, China National Bureau of Statistics Change in (average)

Emerging Markets: The Engines Of GrowthMedia Round Table, Hong Kong, March 7 2019 Dr Jérôme Haegeli, Group Chief Economist

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1. Economic Environment

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‘’The shift in economic power from the West to the East continues’’

2

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Emerging Markets: The Place To Be

3Source: Swiss Re Institute, IMF

United States:2.2%

Latin America: 2.1%

China: 6.1%

Euro area:1.2%

Real GDP growth in 2019

EM Asia excl. China: 6.2%

EMs will continue grow significantly faster than DMs

China has overtaken the USand contributes more to global GDP (ppp)

0% 10% 20%

1998

2008

2018

USA

China

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Emerging Markets > Developed Markets

4Source: Swiss Re Institute, China National Bureau of Statistics

Change in (average) 10-year rolling GDP growth volatility in 2018

Higher quality growth in EMs China transitions from industry to service focused economy

19%10%

45%

41%

36%49%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2018

Agriculture Industry Services

EM China DM

-49% -32% +19%

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Macro Challenges Nature China Brazil India Russia Mexico Turkey Indonesia

Ageing demographics Structural l L l L l L L

Trade dependence Cyclical/Structural L l L L L L L

Financial volatility Cyclical l l L L L L L

Productivity growth Structural l l L L L L L

High indebtedness Cyclical/Structural l l L l L L L

Competitiveness pillar China Brazil India Russia Mexico Turkey Indonesia

Market size L l L l l l L

Innovation capability L L L l l L L

Financial system L L l l l L L

Infrastructure L l l l l L L

Business dynamism L l l l l L L

Global Competitiveness Index Score l l l l L l L

Macro challenges: Asian EM Fundamentals Better Compared To Others

5

l= current conditions pose an obstacle for growth prospects and require actionl= current conditions are not critical but could benefit from proactive policymakingl= current conditions do not represent an obstacle for growthSource: Swiss Re Institute

Challenge Competitiveness

l= current conditions pose an obstacle for growth prospects and require actionl= current conditions are not critical but could benefit from proactive policymakingl= current conditions do not represent an obstacle for growthSource: Swiss Re Institute

On the bottom tercile of the 140 countriesOn the middle tercile of the 140 countriesOn the top tercile of the 140 countries

Source: Global Competitiveness Report (World Economic Forum), Swiss Re Institute

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Economic Reforms Key To Avoid Credit Boom Bust Episodes

Note: includes lending to households and non-financial corporationsSource: Swiss Re Institute, based on BIS data

0

50

100

150

200

250

1980 1985 1990 1995 2000 2005 2010 2015 2020

Private non-financial sector debt, as % of GDP

Japan asset price bubble Spanish housing crash

Thailand (Asian crisis)

China credit boomUS subprime crisis

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Our Expectations For The 2019 NPC Meeting. Reforms Now More Important Given Risk of Current Account Turning Into Deficit This Year

7

•GDP growth target: 6.0%-6.5% (lowered)

•CPI target: below 3% (unchanged)

•Monetary policy: Prudently moderate

•Fiscal policy: Proactive, incl. ongoing progress on infrastructure front

•Reform focus: SOE, taxation and financing, market access and social management

•Opening-up: Foreign Investment Law, Patent Law

Economic Development Targets

Policy Stance Reforms and Opening-Up

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General Public Release

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2.Insurance Market

88

‘’Emerging Asia and China will continue to power global insurance market growth’’

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40%

23%

28%33%

13%16%

4%

3%

10%

22%

2% 1%

3%

2%

2018E premiums (USD)

Non-life: 2.38 tnLife: 2.85 tn

9

China To Become Largest Insurance Market by Mid-2030s; The Shift From West To East Continues

North America

EuropeEmerging Asia

Adv. Asia

Oceania

Middle East and Africa

Latin America

Note: Premium share figures may not add up to 100% due to rounding.Source: Swiss Re Institute

Non-life market share (2008, 2013 and 2018E)Life market share (2008, 2013 and 2018E)

Asia accounts for 31% of

global premium

EM Asia:~3x stronger growth than world average!

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Infrastructure Provides Enormous Opportunities For Insurance Sector

10

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

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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 33

0 2

11 10 3 4

4326 27

4

Latin AmericaTotal: 28bn

EuropeTotal: 100bn

15 5 5NA

MEATotal: 25bn

178

6944

13

Asia PacificTotal: 304bn

North AmericaTotal: 69bn

Mortality

Property cat

Property non cat

Agriculture

Lack Of Insurance Prominent In Asia

Protection gaps in USD bn

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3. Resilience

‘’The global economy is less resilient than 10Y ago. NPC focus on economic reforms would improve prospects for China and the global economy”

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10 Years After The Global Financial Crisis… The World Is Less Resilient

13

+70trn 9.5trn -2%pts

High debt burden

Negative yielding sovereign bonds

Lower economic growth

Sources: IIF, IMF, Swiss Re Institute

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Resilience: Think Global, Act Local

14Source: 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

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Key Messages

15

The shift in economic power from the West to the East continues

China to become the world's largest insurance market by the mid-2030s

Global economy less resilient than 10y ago. NPC reform actions key for

China and global prospects

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Appendix

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Emerging Asia Will Continue To Power EM Insurance Market Growth

17Source: Swiss Re Institute

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China’s Growth in Insurance Line Of Business Leading To Being Largest Insurance Market In The World By Mid-2030s

18

Non-motor lines

Green insurance

Protection type life insurance

Old-age related insurance

7.4% Non-life

Premium growth rates at least 2x higher than global average over the next 10 years

9.1% Life

Note: averages are the CAGR of 2020-2029Source: Swiss Re Institute

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China’s real GDP Growth Has Been Surprisingly Flat Recently With Alternative Indicators Show Growth Peaked in Q1 2017

19

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Difference in real GDP growth rate (sector-inflation based)Official real GDP growthReal GDP growth (sector-inflation based)Real GDP growth (PPI based)Real GDP growth (CPI based)

China’s real GDP growth by different measure of GDP deflator • There is a surprising lack of volatility in China’s official real GDP growth

– Nominal GDP growth was 10 times more volatile*

• Use of alternative deflators show more volatile real growth

– The deviation has been in general within 1ppt in terms of growth rate

– Real GDP growth rates calculated by different deflators are converging towards end 2018

• The recent deceleration of growth could be sharper than officially reported

– Ours, as well as other estimates, show growth that could be lower than official figures in 2015-16

– Currently, the difference in estimated and official growth rates is not much higher than in 2016

Source: NBS, calculated by SRI

Note: Following the value-added approach by NBS, quarterly GDP values by three sectors namely primary industry, secondary industry and tertiary Industry are used in the analysis.

* Based on standard deviation of growth rates between 1Q 2015 and 4Q 2018

, RHS

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Legal notice

21

©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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