The Malta Independent 21 February 2019, Thursday

2019 will give way to a mild slowdown in world economy – MAPFRE Economic Research

The Malta Business Weekly Thursday, 31 January 2019, 09:35 Last update: about 20 days ago

Fundacion MAPFRE's Economic and Industry Outlook Study has predicted a fall in the contribution to global growth from developed markets, while emerging markets are expected to provide a greater contribution to the economy during 2019.

The research states that the global economy could grow by 3.3% this year, three tenths less than what was expected to be recorded for 2018, as the year will be marked by a slowdown in the global economy, an adjustment which will nevertheless be smooth and orderly.

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MAPFRE Middlesea and MAPFRE MSV Life in collaboration with The Maltese-Spanish Chamber of Commerce held a Business Breakfast to discuss this recently published study.

The event was opened by the Ambassador of Spain and the keynote speaker was Gonzalo de Cadenas-Santiago, Director of Economic and Financial Research at MAPFRE Economic Research.

Key panelists included Kenneth Farrugia, David G. Curmi and Wilfred Kenely, who discussed the repercussions of this forecast in the local scenario, while Felipe Navarro, CEO of MAPFRE Middlesea, moderated the panel.

Among the symptoms of slowdown detected by the report, the reduction in the temporary premium in the yield curves of developed countries, challenges faced by the financial accounts and balance sheets of corporate sector actors, high levels of public sector indebtedness in the developed world, excessively priced assets or distortions in global economic governance all stand out.

"The cyclical slowdown is a fact," explained De Cadenas-Santiago; "the development of global economic indicators, the stock market correction experienced since the middle of the year, the fall in corporate profits and -in particular- the global correction of trade flows and Foreign Direct Investment account for this. They are all symptoms of change, already palpable in trade, investment and global expectations."

MAPFRE's Economic Research states that despite this slowdown, we are facing a smooth international cycle of change that can be managed under current economic policy and which ultimately facilitates correcting the imbalances generated by the global pro-cyclical economic policy of the past five years.

This however, does not come without risks. The greatest risk identified by the report is related to the pressure that institutions may be subject to for a political or market agenda.

In the insurance industry, the expected economic slowdown will translate into growth of global insurance premiums, especially in the Non-Life and Life risk segments, given their strong link to the behavior of the economic cycle.

In Malta, the expectations are that the economy will continue to experience strong levels of growth according to forecasts made by The Maltese-Spanish Chamber of Commerce. The current economic growth being experienced in Malta may also present more opportunities for investment. As highlighted during the Business Breakfast, organizational financial growth is not likely to be long-term and therefore one must look at the prospects of current investments.

It was further discussed that with regards to the insurance industry, economic implications may also include the possibility of pension schemes being exposed to demographic-related risks. It is probable that the public expenditure pertaining to pensions may increase from 12.5% to 16% in the next 20 years, which as a result, presents the possibility of an increase in the retirement age.

The panelists discussed that it would be plausible for the government to introduce a saving scheme in the form of a soft propulsion in the next 5 years, something which is already practiced in the United Kingdom. Meanwhile, regulatory measures within the insurance industry are likely to increase in both complexity and cost in the future. In this case, one must take into consideration the implications which these new measures may have on both clients and (potential) investors.

The final topic of discussion at the Business Breakfast pertained to Blockchain, a new business trend which may yield promising long-term prospects for its operators in Malta. Until now, Malta has been agile in bring together a suite of regulators for this line of business. The regulatory frameworks for Blockchain are designed with the intent of inducing digital innovation.

Although Blockchain contains pitfalls, it ultimately boasts a promising future for the Maltese economy, with regulatory measures being subject to improvement as time goes on. Naturally, there will always be risks which encompass operations in any particular industry. Nevertheless, certain mitigating actions would need to be in place in order to sufficiently manage those risks.


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