Asia is ‘standing on its own two feet’ amid global shocks: Swiss Re chief economist

“Asia is standing on its own two feet,” says John Zhu, chief economist Asia at Swiss Re, commenting on how emerging markets in the region are showing remarkable resilience to shocks from the COVID-19 pandemic and global inflation. While each market tells a different story, growth momentum in Emerging Asia remains higher overall.

“Inflation in Asia, on average, has been much lower than in Europe or the US,” Zhu told EAIC Today. “It has been a reasonably good year in terms of recoveries staying on track.” However, the picture is mixed. Some Asia-Pacific countries face “too-low inflation,” while others are seeing inflation high enough to drive interest rate hikes.

“In China, the concern isn’t too much inflation but too little demand,” Zhu explained. “By contrast, in Japan, inflation is high enough that they’ve begun raising interest rates, while the Federal Reserve and other central banks are cutting rates.

“There are many different stories in Asia, but overall, we believe this region will continue to drive global gross domestic product growth and premium growth for the insurance industry,” Zhu stated.

One of the key trends he highlighted is the “return to more volatile financial markets”. There have been “various short-lived shocks” in the financial sector, such as the volatility caused by the potential unwinding of yen carry trades. However, these incidents have not resulted in major spillovers. 

“The fundamentals in the region remain relatively steady. We don’t see the US going into a hard recession,” Zhu added, which is a crucial factor for maintaining financial stability in Asia.

The Chinese economy, which has been long under global scrutiny, is expected “to start to bottom out and recover”, Zhu predicted, although he cautioned that the recovery will be “not especially rapid”. Avoiding a deflationary scenario similar to Japan’s prolonged stagnation is an encouraging sign. Similarly, Hong Kong, which was slower to reopen post-pandemic, has seen “pretty good recovery” since the start of the year, especially in the insurance sector, he said.

“The Hong Kong dollar peg has been a huge boon for life insurers.”

Interest rate boon

Some parts of Asia’s insurance sector are benefiting from higher interest rates. Zhu pointed out that these are allowing these markets to offer more attractive savings products to consumers. Hong Kong, for instance, has reaped benefits from its currency peg to the US dollar, enabling life insurers to take advantage of US interest rates. “The Hong Kong dollar peg has been a huge boon for life insurers,” Zhu explained, with similar positive outcomes in Singapore.

The easing of US monetary policy, which Zhu describes as “a tailwind for Emerging Asia”, is expected to reduce borrowing costs for companies reliant on US dollar funding. “This shift should help emerging markets to attract more capital flows back into the region to fund investments and growth,” he said.

Zhu warned that “volatile interest rates” could pose challenges for insurers, particularly in managing short-term capital strains. This is where reinsurance solutions become important, offering relief on the capital side. Zhu highlighted Swiss Re’s role in supporting insurers during such periods, ensuring they remain resilient amid market fluctuations.

Another major issue Zhu touched on is social inflation, which is no longer just a “US topic”, he said, but is now gradually creeping into parts of Asia-Pacific, particularly in Australia. 

“We want to monitor and be ahead of the curve in Asia, learning from the experiences of the US to avoid surprises,” he said. 

“It’s not a major issue across most of Asia yet, but it’s crucial to stay vigilant about emerging trends.”

Good growth

Regarding the future outlook for Asia-Pacific insurers, Zhu struck a balanced tone. While the region continues to face more volatile financial markets, he said he is optimistic about growth prospects. In the short term, Zhu sees it as “a wake-up call” for investors in the region, while reassuring that “the fundamentals in the region haven’t changed much”. He expects steady growth in the region, with no major economic crises on the horizon.

On the subject of natural catastrophes, Zhu pointed to growing climate risks across the region. “We are seeing high frequency, high severity of natural catastrophe events,” especially in markets such as Japan and Australia. He stresses the need for insurance solutions that are sustainable and able to mitigate the rising risks posed by climate change. 

“Things can be done on the underwriting and pricing side,” he suggested, along with public sector partnerships to bolster resilience against these increasingly common events.

Overall, the chief economist sees a “new equilibrium” forming, with inflation stabilising and interest rates settling at sustainable levels—neither too high nor back to crisis-era lows. This, combined with the resilience of Asian economies, offers a “much better scenario for insurers”, he said, in terms of planning and investment.

“Asia is diverse, dynamic, and remains a key driver of global growth,” Zhu affirmed. 

For more news from the East Asian Insurance Congress conference (EAIC) click here.

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