An uncertain 2023 coming for the economy

The economic downturn will continue in 2023 despite the better-than-expected performance in the third quarter of this year. Persistent inflation will return to sustainable rates until the end of 2024 and monetary policy will remain in tight territory for at least six more months. Against this backdrop, there will be heightened financial volatility, asset value corrections are expected, and there is a risk that the liquidity problem will turn into a solvency problem. This is what Gonzalo de Cadenas-Santiago, Director of Macroeconomics and Financial Analysis at MAPFRE Economics, warned this Tuesday at the ASEAFI Strategies event on December 13.

According to his analysis, global growth will oscillate around 2% as a result of the recession in some economies, such as Germany and the United States. In the medium term, “the recovery will be fragile and asymmetric,” he explained. The eurozone will face regional differences due to the impact of the war in Ukraine. “In the U.S., the effects of monetary policy on employment are still to come, while the G7 continues to face both demand (income erosion, financial conditions) and supply-side (bottlenecks and energy or raw material shortages) problems,” he added.

In the long term, the risk is that underlying inflation and debt will increase. In fact, in his view, these are two of the triggers of a possible global inflationary recession. “The others are high financing costs, the strong dollar, and the economic scars of the crisis, among which are the decline in savings and the destruction of SMEs," he said. In order to deal with these challenges, the MAPFRE expert envisages possible mitigating factors, among which he highlights a balance sheet restructuring of financial institutions and households, an easing of oil prices, and lower external vulnerability in emerging countries.

In any case, the insurance industry’s business will be impacted, although it will also be offset by the new cycle. “There may be a contraction in demand in some sectors, although it will be offset by others,” he said. An increase in the cost of claims is expected, so both the financial and non-financial costs of acquisition and management are likely to rise. “In addition, difficulties are expected when generating life savings business due to the rise in rates, although this will be partly offset by a better performance of existing contracts,” he concluded.