Global resilience has taken a hit – these countries will bear the brunt
The global economy has suffered its biggest shock since the Second World War. When coronavirus hit, we battened down the hatches and it’s driven us into deep recession.
As countries begin to emerge, they face a different landscape. Massive stimulus packages rolled out by hard-hit economies have created a seismic shift. They may have softened the impact, but they have left us more exposed to future economic shocks than before.
According to initial figures from the Swiss Re Institute’s Resilience Index 2020, we estimate global resilience has dropped by a fifth in 2020 compared to 2019 levels. This is a comparable fall to that seen during the 2008 Global Financial Crisis. But this time, the impacts have been far more rapid: during the GFC, the same scale of decline took three years to materialise. In addition, we went into this recession less resilient than in 2007 ahead of the GFC. And despite major bailouts and fiscal stimuli, lockdowns continue to hamper economic activity.
In an uncertain global economy, resilience is key to building economic stability. Identifying weak spots at a macro and micro level will put us in a stronger position to manage risk. Alongside their resilience status prior to the pandemic, fiscal policies are likely to be key in shaping the economic resilience of each country post-pandemic.
But, even for some at the top half of the resilience index, monetary policy buffers are all but exhausted. Many levers have already been pulled. This reduced space to manoeuvre means our preliminary 2020 rankings have seen some major shifts from 2019.
Here are some of the most notable changes.
United Kingdom
From sixth place in 2019, we estimate that the UK will fall to 14th in the Swiss Re Institute’s 2020 macroeconomic resilience index. The country’s fiscal package has been unprecedented, with measures amounting to in excess of GBP 190 billion by July. Widespread and costly interventions mean macro policy measures are mostly spent.
This leaves the country very little policy space to respond to additional infection waves. It is set to witness a drop in its economic resilience score from 0.74 in 2019 to 0.41 – one of the biggest drops in the rankings.
Brazil
Like the UK, Brazil too has seen a significant decline in policy space. It is set to fall from 20th to 30th place in the index. Fiscal policy interventions have left it with less space than the average for both advanced and emerging economies.
The country, which has been one of the worst hit by the pandemic, was already on a fragile economic footing. Policies introduced to aid its recovery from recession in 2015-16 had little time to bed down – or have seen their effects wiped out by stimulus packages. Even before the current crisis, the World Bank highlighted restoring fiscal sustainability as one of the most pressing economic challenges for the country. With insufficient time to rebuild its economic buffers the country is now one of the most vulnerable to shocks within our ranking.
Japan
Japan had virtually no monetary policy space going into the pandemic. Years of borrowing had already left the country debt-ridden and vulnerable. And heavy borrowing and spending to bolster the COVID-19-hit economy have further accentuated this position and widened the budget deficit.
The recorded infection rate in the country has been comparatively low among others in the rich world. But, unlike many other rich countries, Japan’s economic growth was already fragile and heading into for recession prior to the pandemic.
United States
Like the UK and Japan, the US will face a steep economic contraction this year and see its fiscal buffers depleted the most. It is set to fall from a 2019 index score of 0.80 to a 2020 score of 0.58.
As a result, the US is likely to drop down the rankings to fifth place. However, the US’s relatively small dip in the rankings masks the resilience divide between it and resilience champions such as Switzerland and Canada.
Stable scores
Indeed, Switzerland and Canada benefit from well-developed financial markets, strong human capital and banks, as well as an efficient labour force. While their fiscal spaces were also battered, they remain in better shape overall and once again come out on top of the list despite the disruption.
China is another country that is set to hang on to its 2019 index position. In China, rapid containment measures meant restrictions could be lifted earlier than in some other nations. As a result, its economy has needed less stimulus than that seen in the US and Europe, and its resilience is likely to be largely unchanged in 2020. Despite fluctuations around it, China is set to hold its 19th place in the table.
Overall, six of the countries featured have seen no change to their score from 2019. Mexico and Hungary have seen slight improvements.
Swiss Re Institute launched its Macroeconomic Resilience Index in 2019. The Index ranks countries with respect to a broad spectrum of variables to offer a more holistic assessment of economic health than gross domestic product alone.
Replenishing resilience to transform the future
We still have some way to travel in this pandemic. Replenishing economic resilience needs to be a top priority if the world is to stand a better chance of dealing with ongoing uncertainty and future shocks.
As we rebuild economies, structural reforms and targeted investments will be vital to weaving in greater resilience. This is a unique opportunity to transform and strengthen the preparedness of both individual countries and wider society.
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About the author
Swiss Re Institute harnesses Swiss Re’s risk knowledge to produce data driven research across the company and with partner organisations. The Institute fosters knowledge sharing and supports decision making with its publications, client programmes and conferences.
Swiss Re Public Sector Solutions is dedicated to helping governments and public sector stakeholders at all levels to strengthen their resilience strategies.
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Great article. We need more research like this to give an insight into what policies are required for the future.