Inflation in China remains muted post-pandemic, reflecting soft domestic demand, which will have limited impact on global growth and inflation; and marginal upside risk for L&H insurers, analysts at the Swiss Re Institute have stated.
Consumer price index (CPI) inflation rose on average by 1% in the first four months of 2023 year-on-year (yoy). This, according to the report, reflects weakness in overall demand.
The divergence between GDP growth and inflation is atypical of an economy primed for recovery from pandemic-induced shutdown, analysts noted. The outcome is well below the CPI averages of 5.6% for the US and 7.7% for the euro area for the same period.
Analysts said: “The weakness in overall demand manifests through slow consumption growth and low demand for credit, even though borrowing costs are low. Such a liquidity trap-like situation could undermine the effectiveness of still easy monetary policy.
“Hence, in spite of a stronger-than-anticipated outcome in 1Q23, we keep our full-year real GDP growth forecast for China at 5.5% yoy, with risks to the downside.”
With the soft demand environment, Swiss Re estimates inflation will be sub-2% in 2023. As China has integrated more into the world activities over the years, its economic developments in international supply chains have played a main factor shaping global growth and inflation conditions.
However, currently the dynamics impacting recovery in China are heavily domestic-focused, which would cause little spill over to global growth and inflation, analysts have observed.
In insurance perhaps more so, they added. A soft labour market, slow income growth – due to the prolonged pandemic related restrictions on economic activity – and negative wealth effects from a property market slowdown has reduced household purchasing power and confidence.
These fears over income security have generated demand for savings-type products and boosted L&H premiums, the report highlighted.
“This shows in the life insurance premium growth of 10.8% yoy in the first four months of this year, up from 3.1% for 2020-22. There has been less interest in risk protection solutions,” analysts explain.
“For instance, health insurance premiums grew 5.1% yoy in the first four months, down from an average of 7.2% for the same period in the previous three years. The net result on China’s L&H sector has been slightly positive, which should also support global premium volume growth this year.”
