The framework conditions for the global economy improved to such an extent in the second half of 2014 that the forecasting institutes anticipate a gradual pick-up in economic impetus for 2015. The Kiel Institute for the World Economy expects the global economy to post slightly higher growth year-on-year of 3.7% by the close of 2015.
Monetary policy, which for the most part continued to be highly expansionary, and the positive stimuli from the current low price of oil are supporting progressive deleveraging processes in the private sector and boosting business activity. This will likely lead to stronger growth rates, especially in the mature national economies. As a further factor, the restraining effects of fiscal policy will probably diminish overall. Emerging economies should profit from rising demand in industrial nations, although structural problems will hamper a rapid return to the heady growth rates of past years.
The susceptibility of the economy to distortions that has been witnessed in recent years will continue. Emerging upheavals on financial markets, the exacerbation of geopolitical tensions or changes of government in Europe’s crisis-ridden nations could at times severely undermine the expansion of the world economy.
|Growth in gross domestic product (GDP)|
(forecast from previous year)
|Source: Kiel Institute for the World Economy|
The growth in output in the United States will probably rise by one percentage point in the year ahead to 3.2%. The main engine of growth is the continued improvement of the labour market; this will progressively stimulate consumer spending and accelerate wage growth. With sales prospects brightening at home and abroad, investment activity will also pick up. It will be boosted by the continued favourable financing environment.
Developments in the Eurozone are still overshadowed by structural problems affecting parts of the currency area, and hence growth will only gather pace gradually. In 2015 it is expected to come in slightly higher than in the previous year at around 1.2%. Not least owing to the very low price of oil, consumer prices will probably rise by just 0.3%. Fears of deflation consequently persist. Even if this should happen, however, the economy will probably not suffer because such a scenario would be driven essentially by energy prices and would not therefore be accompanied by lower household and corporate earnings. Unemployment is expected to shrink further to 11.2%. The United Kingdom should generate roughly the same growth – at 2.9% – as in the previous year.
Economic activity looks to be trending higher again in Germany after a period of stagnation: the experts at the Kiel Institute for the World Economy anticipate a growth rate of 1.7% and a medium-term positive tendency. In the early months of the current year the economy will be driven primarily by private consumption. Subsequently, cyclical upward forces will increasingly kick in, and output should therefore surge sharply in the second half of the year. The favourable financing climate should serve to consistently stimulate investment activity. As the global economy revives, export impetus should also rise.
The economic upturn will not be felt on the labour market until the middle of the year because the first six months will still be under the sluggish influence of the previous year. Overall, the number of persons in gainful employment will likely continue to grow and the jobless rate should fall slightly to 6.6%.
China, India, Japan
The room for manoeuvre in fiscal policy has contracted in many emerging markets because their monetary policy was geared more towards stabilising the exchange rate than stimulating the economy. Although the upturn in economic activity in these countries will therefore again be more vigorous, it will be on a lower level. Growth of 7.0% is anticipated for China in 2015, with an ongoing slowing tendency. In India, where the economy last year came in slightly ahead of expectations, the previous year’s growth rate of 6.5% will probably be repeated. Japan is forecast to deliver growth of around 0.8%.
The decision of the European Central Bank to stand by its low interest rate policy and purchase government bonds is intended to protect the Eurozone against the threat of deflation. The US Federal Reserve, by contrast, set in motion the trend reversal in its interest rate policy. This should be reflected in a continued strong US dollar. International bond markets will again be shaped by below-average and increasingly divergent interest rate levels in 2015. In the relevant currency areas for our company we anticipate at most unchanged yield curves and moderate interest rate rises. With respect to Treasury bonds issued by the countries of the European Monetary Union with higher risk premiums, which have been the focus of so much attention of late, stabilisation may continue despite the current deflation risk. Generally speaking, the very low volatility seen on the capital market is not expected to be sustained. The effects of currency and oil price movements should therefore be all the more pronounced, although on balance the opportunities for the world economy will outweigh the risks. As a further factor, the elections in a number of European countries have the potential to unsettle the strategy of taking incremental steps to resolve the Euro debt crisis. The necessary consolidation of public finances in the industrial nations will therefore continue to preoccupy the economic environment; it may, however, be overcompensated by resurgent private consumption and investment demand. In view of the existing uncertainties, broad diversification within the investment portfolio will therefore continue to be of considerable importance in the current financial year.
The international insurance industry will likely find itself operating in a largely unchanged environment in 2015. Even though experts believe that low interest rates will continue, the insurance sector should remain on a stable course in the current year.
Preparations for implementation of the European Solvency II Framework Directive are progressing apace. To this end, the European Commission has recently set in motion further decisions (“delegated acts”), as has the federal government on the German level. The new stipulations provide companies with a guiding framework for the application of Solvency II from 2016 onwards.
In China, too, the regulatory requirements have grown enormously in recent years. The local regulator, the China Insurance Regulatory Commission (CIRC), already requires submission of regular reports both in writing and orally. Adoption of the new regulatory regime C-ROSS (China Risk Oriented Solvency System) is envisaged for 2015; this will require even more detailed reporting and it will thus increase the workload on companies. In terms of content, C-ROSS is geared towards the European Solvency II guidelines, thereby further increasing international comparability.
Generating growth in a highly competitive environment is likely to prove a challenging task in 2015. Industry experts estimate that premium volume will be stable overall. What is more, if the current year should also pass off with another very light burden of major losses, the market will respond with a further decline in prices – especially for natural catastrophe covers.