MAPFRE Economics does not rule out a recession in Europe and the United States by 2023

The Mapfre Studies Department, Economy Mapfreslightly lowered its growth forecast for the Spanish economy for 2022 on Monday, from 4.2% to 4.1%, and sets its forecast for 2023 at 2.4% against the previous 3%after the “flattering” expectations of the beginning of the year were disappointed by the consequences of the invasion of ukraine. As for inflation, it averages 8.2% for this year and shows its concern about the increase in the underlyingwhich “is close to the range of 5 or 6%”, according to Gonzalo de Cadenas-Santiago, director of macroeconomic and financial analysis.

This is what emerges from the report “Economic and sectoral panorama: prospects for the third quarter” in which the Mapfre research department warns against a increased risk of an alternative, more negative scenario, which would mean that GDP enters negative territory next year, with a fall of 2.5%. This scenario would occur in the event that the war extends beyond 2022, with greater sanctions or supply cuts from the Russian front, with more persistent inflation rates, and with a more forceful restrictive monetary response.

Globally, the report shows how, throughout the second quarter of 2022, the global economy continued to move towards a scenario of deterioration of activity and rise in inflation rates. He identifies three risks that have led to this situation: the geopolitical crisis -and its implication in supply chains and energy systems-, the “weak” governance at the global level, and the effects that both generate on economic policy. . This leads them to apply a drop in their forecast for the whole of the year in their base scenario, from 3.6% to 3%, and “with increasing signs of a possible recession”.

Concerning the euro zone, the Research Service maintains an expected growth, in the base scenario, of 2.7% and 1.8% for 2022 and 2023, respectively (compared to 2.9% and 2.7% previously) . In the United States, we are also witnessing a downward revision of growth, although more limited than in the euro zone, with an expected rate of 2.5% and 1.4% in 2022 and 2023 (compared to 3.2 % and 1.7% above).

With regard to emerging countries, it is expected that China and Southeast Asian countries represent “a certain buffer for global growthalthough to a lesser extent than when reopening after the Covid-19 crisis”. In the specific case of Latin America, Mapfre Economics expects a “positive performance”, although with notable differences between exporting countries, benefiting from the current context of raw materials, and importing countries or countries with tacit vulnerabilities, which “could encounter difficulties in financing their current accounts”.

Impact on the insurance sector

The report includes an analysis of how these forecasts affect the performance of the insurance industry, whose scenario “complicates”. Experts agree that tighter monetary policy will slow aggregate demand, chilling the economy into an environment of higher and longer-lasting than expected inflation that is eroding household purchasing power and corporate margins. More specifically, they have halved growth in life insurance businessset at 8% in its initial forecasts.

However, and although the environment is complex for the insurance sector, given its correlation of activity with the economic future, Mapfre Economics considers that business opportunities arise in life insurance savings and traditional life annuities with guaranteed interest rates, and certain branches of activity, such as health insurance, could continue to perform well given the state of saturation in which public health systems find themselves .

In the particular case of Spain, the expected dynamics are similar. According to Mapfre Economics, high inflation rates (10.2% in June) and their consequences darken the outlook for the insurance business and erode its profitability, increasing pressure on insurance prices. For its part, the shortage of supply continues to weigh on the automotive sector, so that the motor insurance business will continue to suffer from this situation in the coming months, while the context of the insurance business Life linked to savings and annuities Traditional annuities continue to improve due to the tightening of monetary policy by the ECB. However, nominal interest rates remain at levels below inflation, which also makes it difficult to market this type of product.

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