Eight years have passed since the global financial crisis but global economic growth remains modest and fragile. It's now time for a more comprehensive policy approach, building upon the determined and swift policy action taken in the immediate aftermath of the crisis.
Swiss Re's latest report within its long-term investors' series proposes measures to strengthen private capital markets, supporting financial market resilience and increasing economic growth.
Growth recipes – The need to strengthen private capital markets advocates for a comprehensive policy approach, including concrete structural reforms and targeted fiscal stimulus.
"Central banks have entered uncharted territory by cutting interest rates to record low levels and launching large scale asset purchase programmes," according to Swiss Re's Head Investment Strategy Jerome Haegeli. "These actions have crowded out long-term investors and hampered the capacity of private capital markets to act as a buffer against adverse shocks. Compounding the situation is the global debt overhang, declining productivity, demographic changes and growing income and wealth inequality – all these factors also weigh on economic growth."
The report proposes several “growth recipes” from the perspective of a long-term oriented investor.
A key area of focus is potential policy measures. "The crisis policies of central banks should be unwound in an orderly manner. This should go hand in hand with concrete structural reforms and targeted fiscal stimulus," Haegeli said. "Low interest rates disincentivise structural reforms and distort asset prices. For sustainable economic growth and financial resilience, access to risk capital pools needs to be improved and innovative private market solutions supported."
The report also suggests establishing infrastructure debt as a tradable asset class, strengthening of investor rights, as well as promoting public-private partnerships, GDP-linked sovereign bonds and Blockchain technology.
The recipes for growth have one common theme: to allow private capital markets to fulfil their role and strengthen financial market resilience.
Supporting financial resilience
Re/insurance supports financial resilience by acting as a shock absorber and promoting growth through its core businesses. This is particularly important in a challenging and volatile macro-economic environment.