The world could be looking at a global depression if we don’t contain the virus

Thursday 21 May 2020

Guy Miller, ASIP

Author: Maha Khan Phillips 

Guy Miller, ASIP, Chief Market Strategist and Head of Macroeconomics at Zurich Insurance Group talks about what is in store for the global economy following the coronavirus pandemic

When Guy Miller, ASIP, and I first talked, Covid-19 was still mostly an Asian concern. At the time I asked him what he thought the macroeconomic outlook for 2020 was. He told me that there were structural weaknesses in the system, an overdependence on central banks, and an inherent vulnerability due to over indebtedness at a time of faltering global growth.

And then the pandemic became a global crisis, and we spoke again. Given the shocks that it has created, Miller thinks it’s important to highlight that there were problems in the economic system to begin with. “I think what people forget is that the global economy was already slowing quite markedly as we started this year. Global trade was weak, and there was a lack of business investment. There were a lot of imbalances, government and corporate debt were at record level, and we had a huge dependency on the central banks to provide stimulus, while also having an overdependence on the US and Chinese economies,” he says.

It’s important to bear all this in mind, he feels, because the global economy was ill-equipped to absorb the shock that came. 

It was a shock that nobody could have seen coming, unprecedented in every way. As a result, fiscal initiatives have been announced by governments around the world, and monetary policy response has been unprecedented as well. “We’ve got the Fed for the first time ever taking on credit risk. The ECB is doing huge asset purchases, because it has learnt from the Global Financial Crisis that it cannot make itself either time or size constrained,” he says.

But what happens next will depend on Covid-19. “In a way we have a binary outcome here. Either we have a situation where the virus is contained, and if that happens we can see a sharp recovery in the third and fourth quarter of this year and the global economy can move forward at a reasonably healthy pace. But if that doesn’t happen, if the virus continues to evolve, and we have a start stop approach to opening up economies again, then the downside is really quite significant, bordering on a Global Depression, despite the stimulus I’ve mentioned,” says Miller. 

In Europe, Miller had hoped to see the introduction of an EU Covid Bond. “Europeans could agree to have a common bond designed to support these economies and allow them to rebuild, but unfortunately that seems to be pushed back on. I think that’s a major lost opportunity. We need some sort of mutualisation of debt in Europe. Otherwise, there will always be people questioning the whole construct of the Eurozone,” he argues.

Miller began his investment career in 1991 when he joined National Mutual Life in London as a fund manager. But he’d already developed a keen interest in the investment profession – while studying for a bachelor’s degree in Commerce at Edinburgh Napier University, Miller had a placement with Templeton International. “In those days, Sir John Templeton was still on the scene, which got me interested in global investing,” he says. 

He remained at National Mutual for five years. He was then headhunted by Shell Pensions Management Services, and joined the pension fund in 1996, running a large US equity fund. “One of the early lessons I had was about consistency and credibility, and, as a portfolio manager building history and track record was important,” he says. 

He joined Zurich Insurance in 2003. He says: “I was a portfolio manager, and there was an opportunity to become a market strategist. It was a way of combining the two areas that I was most interested in, investing and macroeconomics. It was an interesting time, because a lot of the big insurance companies, had a near death experience with the bursting of the dot com bubble and restructuring.”

After three decades in the financial industry, Miller says there has never been a dull moment. He believes strongly in the importance of Green Finance for the future. Zurich was an early adopter of responsible investing, and, prior to the current crisis, Miller had been advocating for governments to take advantage of the exceptionally low rates to take on more debt for investment purposes and to decarbonise their economies. 

“At the time, I thought it was something that should have happen for future generations. But now, governments no longer have the luxury of choosing optimum investments. They are having to act in scale and fast, and they need to be both the lender and consumer of last resort,” he says. 
He anticipates that government debt, already at record levels, will go much higher. “Frankly because this is going to support consumption, which is needed right now,” he says.

And governments need to learn from the Global Financial Crisis. “Speed and scale are of the essence to allow confidence to be built,” he says. 

Guy Miller lives in Zurich with his wife and two daughters. “One is nine and one is thirteen. They are more interested in hip hop than they are in investment,” he laughs. 


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