3. Economic Slowdown/Slow Recovery

In 2020, when the COVID-19 pandemic cut a deadly swath across the world, only 27 countries in the world experienced economic growth. Global economic growth dropped from an annual rate of –3.4 percent to –7.6 percent. A year and a half later, recovery seems to be finally on the way.

In Israel, the government officially ended its COVID-19-related restrictions in June 2021, when over half of its population was fully vaccinated. Pre-pandemic life returned. Shops, restaurants, hotels and cinemas were fully open. Meanwhile, the British prime minister proclaimed that people in England would be enjoying “Freedom Day” on July 19, 2021, when many state-mandated rules — on social distancing, face masks and numbers for gatherings — would be lifted. Soon, many other countries, including the United States, Sweden, the Netherlands and South Korea, also eased their restrictions.

Reopening fuels economic recovery. In its latest Global Economic Prospects report, the World Bank said growth is expected to accelerate to 5.6 percent in 2021. Meanwhile, global trade, which fell by an estimated 5.3 percent in 2020, is projected to grow by 8.0 percent.

Due to massive fiscal support and an aggressive vaccination drive, the World Bank projected the U.S. growth rate to reach 6.8 percent in 2021, the fastest pace since 1984. Meanwhile, China’s economy — which hardly contracted in 2020 due to the success of its substantial virus-containment policies — is expected to grow by 8.5 percent. According to the European Commission’s Summer 2021 Economic Forecast, GDP is now expected to increase by 4.8 percent in 2021 and 4.5 percent in 2022.

Despite fast economic rebound, uncertainty still reigns. Economists say global GDP in 2021 is still 3.2 percent below pre-pandemic projections. The growth outlook can also vary wildly from region to region and from industry to industry.

At their July 2021 meetings, policymakers at both the U.S. Federal Reserve and the European Central Bank voted unanimously to leave interest rates unchanged, warning that "risks to the economic outlook remain" and that the path of the economy would depend "significantly" on the course of the virus. In August, the resurgence of the Delta variant prompted economists at Goldman Sachs to slash their forecast for third-quarter GDP growth in the U.S. to 5.5 percent from 9.0 percent because “its impact on growth and inflation is proving to be somewhat larger than we expected.

Concerns for a stalled economic recovery are reflected in Aon's 2021 Global Risk Management Survey, where the risk of economic slowdown/slow economic recovery is listed as the third-greatest risk facing global organizations today. It was ranked as the number one risk in the immediate aftermath of the 2008 financial crisis, but it slipped to number two in Aon’s 2015 and 2017 surveys.

Geographically, companies in the Middle East and Africa, where economies are being hit hard by COVID-19 and fluctuating oil prices, see economic slowdown as a top threat. According to the latest forecast by the International Monetary Fund (IMF), the region’s 4 percent economic recovery rate will lag behind the global growth rate of 6 percent for 2021. The IMF report notes that, within the Middle East, countries that started vaccinations early on, such as the affluent Gulf Cooperation Council countries, face relatively better prospects, while fragile and conflict-affected states “have seen their outlook darken.” Political instability and armed conflicts could also disrupt economic recovery. Among sub-Saharan African countries, tourism-reliant economies have suffered the worst impact.

As expected, survey participants in Latin America also perceive economic slowdown and slow recovery as a number one risk. As of June 30, 2021, COVID-19-related deaths reached more than 1.26 million (32.0 percent of the global total, even though the region’s population represents just 8.4 percent of the global total). The Economic Commission for Latin America and the Caribbean (ECLAC) raised its average growth rate estimate for the region in 2021 to 5.2 percent, a figure that reflects a rebound from the deep contraction of 6.8 percent registered in 2020. However, with low vaccination rates, insufficient investment and employment, and major environmental deterioration, ECLAC says this expansion is not sustainable.

When we break data down by industry, the real estate and construction sectors see the risk of economic slowdown and slow economic recovery as a top threat. The pandemic has fundamentally changed the way real estate business is conducted. The demand for space has been adversely impacted by social distancing, shutdowns, quarantines, layoffs and remote work. The construction sector encountered similar challenges. In the early days of the COVID-19 pandemic, many companies considered stopping, or at least pausing, construction projects due to uncertainty about the economy. Many projects remain stalled as owners continue to worry about demand for office or retail space when so many businesses have closed and people are working remotely. A survey conducted by the Associated General Contractors of America (AGC) in June 2021 found that 68 percent of contractors had seen a project canceled and that 48 percent saw a pre-pandemic project halted.

The transportation and logistics sectors also consider the risk of economic slowdown/slow recovery to be a number one risk. As the pandemic continues, many countries across the globe are keeping their borders closed and limiting transportation and travel, thus creating impediments for international trade and transportation.

At a time of economic uncertainty, it is important to set priorities for maintaining and increasing revenue. While new and accelerated use of technology constitutes a significant opportunity, asset investment is another important solution. This may be linked to the need to invest in assets to make them COVID-19-secure, to reconfigure to allow activity in compliance with local regulations, and to add digital technologies to promote agile working practices. The imperative to keep operations resilient and to gain the trust of employees and customers is likely to be a key factor driving decision making. To keep a healthy balance sheet, companies should look to manage a low level of expense to offset volatility in their revenue lines while optimizing their free cash flow position.

Since economic slowdown is not an event that can be insured directly, Aon believes that a comprehensive and informed enterprise risk management program can further bolster a company’s resilience and agility, improving competitiveness against peers when it comes to managing overall earnings volatility.

Rankings in Previous Surveys

Rankings by Region

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Top 10 Risks

4. Commodity Price Risk/Scarcity of Materials

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