Global macroeconomic conditions will remain challenging in the years to come, as prolonged geopolitical crises perpetuate elevated uncertainty. What’s more, the interplay of global megatrends will force the world to confront a decade of lower growth and higher inflation. This is the primary conclusion of an economic analysis by Munich Re.

More specifically, Munich Re’s Economic Research team forecasts average global economic growth of 2.5% and inflation of 2.2% in industrialised countries from 2025 through 2034 – compared with 3.1% and 1.5%, respectively, from 2010 through 2019.

This downward shift will largely be driven by global megatrends that will affect macroeconomic conditions in the long term. Globalisation, demographics and digitalisation, for example, have in recent decades helped amplify economic growth and reduce inflation. But some of these forces propelling the global economy are changing in fundamental ways, while new ones are emerging. The following four structural trends in particular will probably play pivotal roles over the next ten years.

• Deglobalisation: Weaker international trade and diminished cross-border integration will impede economic growth and fuel inflation
• Decarbonisation: The transition towards a net-zero emissions economy will put pressure on prices and, at least initially, hinder economic growth
• Demographics: Labour shortages exacerbated by ageing workforces in many industrialised countries will drive up wages and thus inflation, while also inhibiting growth
• Digitalisation will be the only megatrend boosting the global economy, as greater productivity fosters economic growth and curbs inflation

On the whole, these four megatrends are set to impact growth and stoke inflation – though it remains to be seen to what extent. Both moderate and severe scenarios are conceivable. The above-mentioned figures for growth and inflation represent the most likely scenario at present. But in one specific risk scenario – i.e. if the aforementioned megatrends have extremely negative repercussions – inflation in industrialised countries could be markedly higher.

Against this backdrop, it is especially important that digitalisation be able to propel productivity gains and that policymakers establish favourable conditions which enhance economic growth.

The insurance industry must prepare for the risk of prolonged inflation that is even higher than already expected – which would have a particular impact on lines of business with long run-off periods, such as third-party liability. On a positive note, underlying changes in the global economy will also engender opportunities in the area of risk-transfer solutions with digitalisation, for instance, and particularly in cyber insurance.

Please refer to the white paper compiled by Munich Re Economic Research for details on each megatrend and the various scenarios involving the global economy and inflation.

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