T‚e gloƒal econo€ and financial ar„ets in 2015 ¢utloo“ improving‰ but interest rates to rise only moderately There will liely be heightened maret The global economy aces our maŠor headwinds that will produce periods o maret volatility alongside moderate global volatility alongside moderate growth in 2016 and 201ƒ“ the ‹„ ¥ederal ˜eserve growth in the next two years… will continue to raise interest ratesŸ —hina continues to open its capital accountŸ commodity prices have stabili§ed at low levels and are unliely to increase substantiallyŸ and global political developments continue to create uncertainty… Nevertheless‰ in advanced marets economic undamentals remain strong… n the ‹„‰ real € is expected to continue to grow steadily this year and next‰ and employment and income growth are expected to remain strong… The Euro area is beneiting rom a wea euro and low oil prices‰ and growth is orecast to improve in each o the next two years… „table growth is liely in the ‹–‰ where consumer spending and housing construction have sustained momentum in the irst hal o 2016‰ in spite o the uncertainty created by the ¦rexit reerendum which has ’ dampened business investment and hiring… Economic growth in the emerging Economic growth in emerging marets is orecast to improve in 2016‰ relecting marets is orecast to pic up‰ but reduced recessionary pressures in ey marets in ”atin merica and —EE… ‘owever‰ challenges remain… wea growth in trade is liely to continue and inancial volatility‰ currency depreciation and capital outlows will remain ey challenges or many emerging economies… rowth in —hina is expected to slow in 2016‰ while ¦ra§il and ˜ussia will liely remain stuc in recession… n ¦ra§il challenges to governability will remain ollowing the recent impeachment o €resident ˜ousse‰ given the heavily charged and polari§ed political atmosphere… n ˜ussia low oil prices and the continuation o sanctions are holding bac growth… ˜is o an emerging maret inancial crisis continues‰ as indicated by wide emerging maret bond spreads… ‘owever‰ the threat o contagion is limited due to stronger inancial buers in individual marets and also enorcement o precautionary macroŽprudential measures… ‚onetary policy divergence will lobal monetary policy divergence will continue in 2016 ater the ¦o• surprised continue‰ and inlation is expected to marets with negative interest rates in •anuary and the E—¦‰ in ‚arch‰ announced accelerate‰ particularly in the ‹„… urther extension o its unconventional policy measures… nlation in the ‹„ is orecast to rise‰ and the ¥ed is expected to raise its policy rate two times in 2016… The slow pace o monetary tightening has increased the ris o inlation… The ¦an o England †¦oE‡ will liely ollow suit‰ with two rate hies starting in ugust ater the ¦rexit reerendum… n contrast‰ the E—¦ and ¦o• are more liely to ease monetary policy urther… n such an environment‰ yields on the ‹„ and ‹– 10Žyear government bonds are liely to rise modestly‰ to 2…2ˆ and 2…0ˆ‰ respectively‰ by endŽ2016… erman and •apanese 10Žyear yields will also rise‰ but by less †to 0…ˆ and 0ˆ‡… Their low value is essentially pulling down ‹„ and ‹– yields… volatility subsides‰ e«uity marets could improve and credit spreads could narrow urther this year… The global economy will liely muddle ‚any downside riss to the global economy remain… n the ‹„‰ the ris is inlation through in 2016‰ but downside riss ollowed by moreŽrapidŽthanŽexpected monetary tightening… n the Euro area‰ a remain… “rexit” could become a problem again as implementation o reorms is lagging… ‘owever‰ contagion ris has declined over the last ew years and the E—¦ has become a credible lender o last resort… mmigration will remain an issue in Europe and could compromise proŽreorm governments and/or delay implementation o structural reorms… n —hina economic and inancial riss remain high… The country is pursuing contradictory policies as it attempts to simultaneously liberalise its capital account‰ lower interest rates to support growth and maintain a stable exchange rate… string o unavourable events‰ such as deaults by property developers or local governments‰ or a sharp renminbi depreciation and capital outlows‰ would increase the lielihood o a hardŽlanding… 4 The result o the 23 •une 2016 vote in the ‹– on whether to stay in the E‹ was not nown at the time o going to print… 6 Swiss Re sigma No 3/2016
World Insurance in 2015 Page 10 Page 12