Lloyd’s research and insights platform, Futureset, today released a new systemic risk scenario that models the potential global GDP impact of a prolonged period of economic stagnation on businesses and communities, and highlights the role of insurance in building greater societal resilience.
The model, developed by Cambridge Centre for Risk Studies and Lloyd’s, estimates the potential five-year global economic impact of the economy slipping into stagnation as $5.2trn.
The scenario looks at the economic shock of a sudden collapse of a key industry and the effect across connected sectors and countries, resulting in a prolonged global downturn. The resulting impacts include a significant restriction in industrial productivity and innovation, increased unemployment levels, and a drop in consumer earnings and spending.
The financial sector is identified as being at biggest risk of the events described, as well as the retail, industrial and utilities sectors, which could be exposed to slowing revenues and cashflow challenges. The regional impacts over the five-year period would be greatest in North America, with losses under the scenario estimated at $1.6trn followed by Europe at $1.4trn and Greater China with a GDP impact of $972bn.
Over the last 60 years, major economies have only been in stagnation 3% of the time. When stagnation becomes sustained and widespread, regional events can evolve into a globally significant downturn which, without stimulus measures, could descend into a recession.
Insurance has a significant role to play in protecting businesses from many of the risks that businesses can face during periods of economic uncertainty including trade credit, mergers & acquisitions, and political or cyber risks.
Read the full scenario