{"id":248658,"date":"2020-12-10T13:48:19","date_gmt":"2020-12-10T12:48:19","guid":{"rendered":"https:\/\/www.testbirds.com\/?p=248658"},"modified":"2023-08-08T09:11:09","modified_gmt":"2023-08-08T09:11:09","slug":"a-challenge-covid-19-and-its-impact-on-the-insurance-and-banking-sectors","status":"publish","type":"post","link":"https:\/\/www.testbirds.com\/en\/blog\/a-challenge-covid-19-and-its-impact-on-the-insurance-and-banking-sectors\/","title":{"rendered":"A Challenge: Covid-19 And Its Impact on The Insurance and Banking Sectors"},"content":{"rendered":"

What we once considered normal is over. The ongoing coronavirus crisis has created instability, volatility, and uncertainty throughout the world. Its impact on the global economy has been immense \u2013 and its knock-on effects will take time to discover.<\/strong><\/p>\n

“We’re recovering, but to a different economy.” \u2013 Jerome Powell, US Federal Reserve Chairman.<\/em><\/p>\n

This is obvious when we compare 2020 with 2019.<\/p>\n

For the United States, 2019 was positive with low unemployment<\/strong> and inflation<\/strong> falling under the Fed\u2019s target of 2.0%. Today, in the second quarter, growth has fallen by a massive 31%<\/strong>. Unemployment is at 14.7% with fifty million people out of work.<\/p>\n

This has, unsurprisingly, led to a significant drop in consumer spending<\/strong> (a foundation of the US economy). And without a new stimulus package expected before President-elect Biden assumes office, this is unlikely to change before the end of January 2021<\/strong>. Such stimulus would, according to Wall Street, be a definite boon to the economy.<\/p>\n

Regardless of how things turn out in the next months, the US economy is likely to take three years to recover.<\/strong><\/p>\n

Within the European Union, things aren\u2019t much better. The eurozone economy has fallen by minus 7.8%<\/strong> during 2020 (though better than the -8.7% from earlier predictions) and is only expected to expand by 4.2%<\/strong> in 2021. The worst-hit has been Spain, Italy, and France, whereas Germany\u2019s GDP, overall, has fared best with a fall of 5.6%. Austria and Switzerland have also performed well, though with a clear drop from 2019.<\/p>\n

The United Kingdom\u2019s long-term pre-Brexit outlook is unclear:<\/p>\n

\u201cAlthough we expect a boost to economic activity as vaccines progress and confidence builds in the first half of 2021, the longer-term outlook will very much depend on the nature and duration of further restriction measures and the outcomes of the UK-EU trade negotiation, which could weigh on growth.\u201d
\n<\/em> \u2013 Jonathan Gillham, Chief Economist, PriceWaterhouseCoopers.<\/em><\/p>\n

At the end of 2020, however, eurozone debt looks likely to exceed 100% of GDP<\/strong>. This has the potential to further impact economic growth and, potentially, to result in financial concerns \u2013 particularly with bankruptcies and job losses \u2013 domestically and internationally.<\/p>\n

On the bright side, as restrictions lift and businesses reopen, it\u2019s clear that the economy has shown improvement.
\nBut as with the United States, full recovery will take years, not months.<\/p>\n

EU economic output “will not return to pre-pandemic levels by 2022.”
\n<\/em>\u2013 Valdis Dombrovskis, European Commission Vice President.<\/em><\/p>\n

This means that the challenges facing businesses of all shapes and sizes are set to continue well beyond 2021<\/strong>. There won\u2019t be a quick and easy fix.<\/p>\n

The influence of COVID-19 on the banking sector<\/h2>\n

With today\u2019s instability and high volatility<\/strong> in global capital markets, all industry is in a state of flux. There is an adverse impact on valuations and business confidence. Banks in the US are looking at flat interest rates and the repercussions of a volatile election.<\/p>\n

Things aren\u2019t different for EU banks. With asset quality low, so are profits. And while capital and liquidity buffers are still strong, potential credit risk losses<\/strong> are a possibility. As per the KPMG Global banking M&A outlook H2 2020 report<\/a>, \u2018A few European banks have already posted significant losses \u2026 to face a potential surge in bad loans.\u2019<\/em>.<\/p>\n

There is also the potential for a global recession<\/strong>. A recent PwC COVID-19 US CFO Pulse Survey<\/a> showed 70% of respondents saw a potential global recession as one of their top three concerns with respect to COVID-19. Seventy-five percent were concerned with the \u2018Financial impact, including effects on results of operations, future periods and liquidity and capital resources.\u2019.<\/em><\/p>\n

On a more \u2018micro\u2019 level, your operational issues<\/strong> must be considered in relation to COVID-19.
\nFor example:<\/p>\n