UK: The solid Conservative majority would lead to higher growth
- The polls were right this time: In the UK elections, the Conservative Party won a solid majority of 74 seats - the party's largest since Thatcher’s election in 1987. -This will allow them to “get Brexit done” in 2020, reducing the uncertainty in the UK economy. Risks of early elections are rather low in the next three years.
- As a result of lower uncertainty and higher fiscal spending, we revised on the upside our 2020 growth forecast for the UK from +0.8% to +1.0% and we expect growth to continue to recover into 2021 (+1.6%).
- What does this mean for companies? Stronger domestic demand would be positive in a context of slowing turnover growth. However, downside pressures on prices should prevail, given the still “above normal” levels of inventories post contingency stockpiling throughout the year. We expect business insolvencies to slow down to +3% in 2020, after +6% in 2019. In 2021, a moderate fall of -2% is likely.
What drives the ECB? An Augmented Taylor Rule for the Eurozone
- Price stability: Half of the ECB story? The European Central Bank’s primary task is the pursuit of price stability, which is defined as inflation rates below, but close to, 2% over the medium term. Our analysis shows that inflation and output gap considerations explain half of the ECB’s monetary policy stance over the past decade. However, from 2016 onwards, output and inflation gap measures alone struggle to explain the ECB’s increasingly accommodative monetary policy stance in a standard Taylor Rule.
- The rise of implicit targets. To test the importance of other motives, we ran selected augmented Taylor Rules, adding explanatory variables and looking at their contributions over time to explain the ECB’s policy stance. Sovereign risk premia, financial stress and volatility indicators, measures of economic policy uncertainty and banks’ stock market performance all appeared relevant to the ECB’s decision-making over the past ten years. Their significance, especially in the case of peripheral spreads and financial stress indicators, peaked at the time of the Euro sovereign debt crisis.
- Inflation matters (again): From 2018 onwards, inflation has made a comeback in explaining most of the accommodative monetary policy stance. However, our results suggest that banks’ stock prices continue to feature high on the ECB dashboard in recent years, especially when compared to other stress indicators.
Is China winning the insurtech race?
- China’s highly concentrated insurance market rose to #2 worldwide and should continue to grow by double-digits. Since the global financial crisis in 2008, insurance premiums (w/o health) have almost quadrupled to EUR 417bn (2018), making China the second biggest insurance market in the world. And there is still plenty of catch-up potential: Premiums per capita amount to EUR 294 in China; in all the other top five markets, people spend roughly ten times as much on insurance. Therefore, we expect double-digit growth in China’s premiums, in particular in the life sector, driven by demographic change.