SUISSE news Fall 2019
Economy
September 2019
It is difficult to escape discussions about the potential for a weakening world economy given significant trade disputes and continued weakness in much of the Euro zone. To better understand how individual countries and the word economy are resilient to withstand such shocks, the Swiss Re Institute and the London School of Economics have produced the SRI-LSE Macro Resilience Index (MRI)
SRI-LSE MRI. In studying the data since 2007, Switzerland and Canada have ranked among the top three each year and in 2018 Switzerland was ranked first globally and Canada close behind in second place.
The index considered the following factors and weightings:
- Fiscal Policy Room (35%)
- Monetary Policy Room (15%)
- Macro Structural Elements: Banking Industry Backdrop (15%)
- Labour Market Efficiency (12%)
- Financial Market Development (10%)
- Economic Complexity (4%)
- Insurance Penetration (2%)
- Low Carbon Economy (2%)
- Human Capital (2%)
The rankings for each criterion are based on data from third party agencies such as the World Bank, IMF or World Economic Forum.
The MRI allocates the largest weighting to fiscal and monetary room and the strength of the country’s banking sector as these are fundamental to a government being able to take policy decisions to mitigate the impact of external shocks to the economy and for the banking sector to continue to provide services to the private sector.
On a global basis, the analysis indicated that 80% of the sample countries had lower resilience in 2018 than 2007 largely due to constrained government policy room and underperforming banking sectors. The Euro area faced the largest decrease in resilience of any global block over this period. The study attributes this to “fragile fiscal situations in some countries, exhaustion of monetary policy options, a still challenging environment for the banking system, labour market inefficiencies and, in relative terms, underdeveloped financial markets”.
The authors note that the general decline in resilience globally is somewhat more challenging given the apparent decline in cooperation among different economic blocks, which could lead to a weakening of groups such as the G20 and the G7, which have had roles in global crisis management in the past.
Hopefully the resilience of the global economy will not be overly tested in coming years. If it is, there would be no doubt that neither Switzerland nor Canada would escape negative ramifications. However, this study provides some level of comfort that companies in the two countries and those considering investing in them, would continue to prosper in two of the most resilient and stable world economies.
