However, the peak in growth is over, and the recovery has been cyclical, not structural.

Uneven recovery across countries 

Significant risks of new virus strains and waves of infection remain, and these could once again bring restrictions on economic activity. As long as global vaccine distribution and uptake remain uneven, the world risks pulling further apart in terms of economic recovery and inequality. Differing economic recovery paths across countries will impact how quickly affected industries and people are able to go back to work and resume earning a living.

We forecast global real economic growth of 5.6% in 2021, 4.1% in 2022 and 3.0% in 2023. The recovery will be uneven, with risks skewed to the downside. Supply-side shocks may persist, including global supply chain issues, and labour and energy shortages, all the while as monetary policy is becoming less accommodative. Inflation risk is our number one near-term macro concern. We expect inflation to remain elevated for some time, stemming from the same supply-side factors that are constraining growth. Pressure is starting to feed into slower-moving but harder to reverse areas such as rent and wages. We expect these headwinds to weigh on the outlook for 2022 and 2023, making structural healing - policies that work to reverse the permanent negative economic impacts of the pandemic - difficult.

Post-pandemic, one of the key structural trends that will shape the long-term path of the world economy is divergence. We are concerned by growing divergence within and between countries in economic recovery, wealth, and income and socio-economic opportunity. These divergences will make recovery fragile. The pandemic’s impact on employment and earnings have been felt differently across different segments of the population. While everyone has suffered, the pandemic has disproportionally affected some lower-income households. Lockdown measures and the economic crisis have hit person-to-person services in low-wage industries like retail and gastronomy, while white collar workers able to work from home have been less impacted. Wealth inequality is also on the rise, as asset price rises have outperformed the real economy. Inflation is surging just as Covid-19 support measures are being withdrawn, adding further pressure on low-income households.

Unequal social bearing of the pandemic has also been seen across generations. Job cuts have disproportionately affected younger, lower-skilled workers and lower-income households, and younger generations have faced pressured labour markets and lack of career opportunities.

Impaired savings opportunities by young working cohorts may translate into future old-age wealth gaps. Government aid and social safety nets can buffer the impact of the pandemic on lower-income households and to this end, policymakers in advanced markets in particular have actioned extraordinary levels of fiscal stimulus to cushion the economic blow of the pandemic. For instance, in terms of GDP, as of January 2021, both the US and UK had allocated roughly 30% of GDP to spending and liquidity support for the economy.1 In the medium term, as governments use up fiscal and monetary headroom with stimulus measures, funds available for social safety nets may decrease. In some cases, post pandemic fiscal policies like higher rates of corporate tax may be implemented to fund social safety nets.

Widening income inequality linked to the pandemic highlights the importance of insurance protection. Insurance plays a key role in providing financial relief to buffer households from shocks, but the most vulnerable tend to have limited coverage. Covid-19 has widened health and mortality protection gaps globally as households grapple with lower incomes, higher healthcare costs and greater excess mortality. According to estimates by Swiss Re Institute, amidst the pandemic crisis, the global insurance protection gap for health and mortality risk rose by over 7% to a new record high of USD 1.2 trillion in 2020, over 60% of which originated from emerging economies.2 Affordability is one key reason for low insurance take-up, but lack of financial inclusion is another.³

In terms of what we call “financial inclusion”, the pandemic has also had disproportionate impact on small businesses and low-income households. These typically have less access to financial services such as bank accounts, payments, loans, savings and insurance.

Almost a third of adults globally (about 1.7 billion people) remain unbanked, half of whom are from the poorest 40% of the world population. Extending traditional financial services to such groups can increase economic growth and reduce income inequality, International Monetary Fund (IMF) studies have found.

Lack of financial inclusion also hampers insurance penetration, which relies in many ways on access to the formal financial sector. However, on a brighter note, Covid-19 is accelerating the digitalisation of financial services, and this trend will help insurers provide tailored, affordable products to underserved consumers. For example, in Brazil, the Insurtech TôGarantido – in partnership with Chubb – launched a low-cost life insurance product (100% digital) bundled with health benefits, targeting low- and middle-income segments.4 Mobile telephony is important to offer solutions such as mobile-based microinsurance, but broad-based gains in financial inclusion will rely on public policy steps including infrastructure investment and digital friendly regulation.

To sum up, in a post-pandemic era, we observe growing divergence between countries with respect to economic recovery, and growing wealth and income inequality across different segments of society. These are structural trends that will shape the long-term path of the world economy and socioeconomic opportunity. Policymakers cannot afford to be complacent. A policy reset that supports greater societal inclusion and cohesion could help address this increasing divergence. Extending affordable insurance can increase economic growth and reduce income inequality, and swift progress towards inclusive digital transformation is vital. Public-private partnerships will be crucial to rebuild resilience for the society and better positioned to cope with future crises.

^{1 See IMF Database of Fiscal Policy Responses to Covid-19, January 2021; the announced USD 1.9 trillion stimulus package in the US added manually.}

^{2 Resilience Index 2021: a strong growth recovery, but less resilient world economy, Swiss Re Institute, June 2021}

^{3 Financial inclusion an opportunity for insurers as digitalisation accelerates, Swiss Re Institute, November 2020}

^{4 Chubb partners with startup TôGarantido to offer policies for “less favored”, Sonho Seguro, 2 April 2018.}