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Looking ahead, Ekholm concludes that the 5G market is growing faster than most analysts have expected and that Ericsson is well positioned to capture this growth. Ekholm also discusses how the focused strategy with increased investments in R&D has yielded results. For the first time since 2013, Ericsson is showing organic growth and improved gross margin and operating margin compared to 2018. Ekholm says: Ericssons financial position is strong, and we have a robust balance sheet with net cash of SEK 34 billion at the end of last year. This allows us to continue to invest, execute on our strategy and also provides resilience. 5G development Börje Ekholm also talks about the technology shift that 5G will enable. The new generation of mobile networks will not only give rise to new areas of use for consumers, it will transform entire industries. Ekholm says: We will see production automation, optimized logistics, new solutions in healthcare and much more. And these are only the areas we can already visualize today; most areas of use are still unknown to us. - Source TradeTheNews.com

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UK insurers tighten terms to explicitly exclude coronavirus

Industry moves to close remaining loopholes, with many contracts up for renewal on April 1

Insurers are tightening the terms of their business coverage to make sure anything related to the coronavirus pandemic is explicitly excluded.

The industry has been criticised for sticking to a tough line since the crisis began that the outbreak is already excluded from many policies.

According to brokers and other advisers, insurers have been closing any remaining loopholes on contracts that are up for renewal to try to reduce their exposure to any future costs.

“They are rushing out a whole series of exclusions in all kinds of different contracts,” said Bruce Hepburn, chief executive of Mactavish, a claims specialist. “The big worry is that these are very broad exclusions.”

“They are making sure not only that they were not on the hook when [the outbreak] happened, but that they won’t be on the hook at all. It really doesn’t feel like they are sharing the pain,” he added.

One insurer has introduced a blanket exclusion for any loss relating directly or indirectly to a communicable disease. Another has tightened the rules about “denial of access” cover — which applies when a policyholder cannot access their business premises — to exclude diseases.

“We are seeing the removal of any ambiguity,” said Alex Balcombe, a partner at claims consultant Harris Balcombe. “Brokers say it is happening across the board.”

The changes come at a crucial time for many customers. Many insurance policies come up for renewal on April 1, and insurers have been making late changes to the terms they are prepared to offer on a range of commercial policies.

“It seems like a pretty bleak day for the industry,” said Mr Hepburn. “They don’t have to take this stance. They could take a premium for it and provide the cover.”

One City insurance broker said the trend was widespread across the industry, both at the Lloyd’s of London insurance market and elsewhere. He said the new exclusions had partly been prompted by requests for information from rating agencies and regulators about how big the industry’s exposure to coronavirus-related claims could be.

Mr Hepburn added that the rush to introduce new wording suggested there were “probably a lot of grey areas” in existing contracts. “The insurers are probably concerned that they’ll have to take a conciliatory approach to some of the claims that are coming through.”

Insurers say the pandemic will cost them as much as a large natural catastrophe, with claims against many types of policies. But they also say pandemics have been excluded from standard business interruption cover for many years, and that there has been little interest in policies that specifically cover this kind of event.

In a letter to parliament last week, Association of British Insurers director-general Huw Evans said providing more coverage for future outbreaks “would require significant state partnership with the insurance sector”.

Euro bailout chief sees hurdles to quick ‘coronabonds’

Short-term crisis response will require use of existing institutions and instruments

The head of the eurozone’s bailout fund said it would take between one and three years to set up a new European institution to issue so-called coronabonds. Any extra joint debt issuance would in the short term have to come from existing mechanisms. 

With political temperatures rising over calls for euro area governments to collectively issue bonds to tackle the coronavirus pandemic, Klaus Regling, the managing director of the European Stability Mechanism, said European institutions have already issued more than €800bn of mutual debt in aggregate. He added they could raise more if needed. 

If the goal is to cover short-term crisis-related financing needs such as expanding healthcare or supporting businesses “then I think the only way is to use existing institutions with existing instruments,” he told the FT in an interview. “In the longer term, there are other options.”

The eurogroup has placed the ESM at the heart of its plans for a joint response to the economic impact of coronavirus. Officials have discussed using its so-called Enhanced Conditions Credit Line (ECCL) for governments seeking extra sources of funding. Mr Regling said it was too soon to expect a consensus among euro area governments on how the ESM’s tools would be adapted. But he expected only limited conditions to be attached to the precautionary credit lines his institution can deploy. 

Last week a group of nine EU member states, including France, Italy and Spain, called on fellow governments to jointly work on a common debt instrument to raise “stable long-term financing for the policies required to counter the damages caused by this pandemic”. However, the proposal foundered in the European Council last week amid opposition from Germany and the Netherlands, which have long opposed greater debt mutualisation. 

Mr Regling indicated it would be possible to set up a brand new European institution to sell common bonds if there were political agreement, but such a project would be complex and time-consuming. “It would take one, two or three years, and member states have to come up with capital or guarantees, or assign future revenue,” he said. “One cannot create bonds out of nothing.”

In the short term, boosting mutualised debt issuance would have to come via three existing EU institutions — the ESM, the European Commission or the European Investment Bank. 

There could, for example, be scope for the commission to issue more debt under the auspices of its forthcoming seven-year budget, Mr Regling said. He added there are arguments for particularly hard-hit countries such as Italy to have their contributions to the budget reconsidered. He did not see any current need to boost the ESM’s lending capacity, which stands at €410bn, saying “there is a lot available.” 

He stressed that countries including Italy continued to enjoy ready market access, drawing a sharp distinction between the current circumstances and the euro crisis that began a decade ago. “There are no huge macroeconomic imbalances in the euro area, which is very different from 10, 12 years ago,” he said.

While some politicians worry that use of the ECCL would damage a country’s standing in the financial markets, Mr Regling argued that the presence of similar credit lines from the IMF has tended to reassure investors. “It can be reassuring for markets because they know if something unexpected happens — if against the baseline assumption money needs to flow — it will be made available very quickly.”

The maturity of any lending under the ECCL would be discussed by the eurogroup of eurozone finance ministers in the coming days, he said. He noted that the ESM has greater flexibility than the IMF. “We don’t have any limits,” he said.

The idea of using the ESM is politically hazardous in Italy, given claims by Eurosceptic parties there that it would entail harsh conditions. However, Mr Regling made it clear that the conditionality attached to ECCL lending would be very different from the euro crisis era.

The conditions would likely stipulate that the money would be made available for health sector spending or financing measures required to counter the economic consequences of the pandemic. There would also be a commitment to respect the EU’s surveillance framework — which is an obligation for all EU member states in any case. 

“Our ECCL as I see it would have very limited conditions which basically make sure that the money is spent in the correct way and that the ESM will be repaid one day,” said Mr Regling. 

He envisaged no financial role for the IMF in the present situation in the euro area, saying the fund has been swamped by applications for financial help from countries outside Europe. The IMF would remain involved via its regular annual consultations with member states, however. 

Mr Regling called for solidarity as all member states head into likely recessions. Public debt in member states could end up being lifted by 10 or 20 percentage points as a share of gross domestic product as a result of the crisis, he warned. 

“Apart from the national response, which is strong and growing, we also need a European response,” he said. “We need solidarity in Europe because if we want to protect the single market, it’s not enough to rescue your own economy. I think every EU member state has an interest to also make sure that all of the other EU member states can overcome this crisis, the biggest since the second world war.”

Economists begin to put numbers on the impact of unprecedented global containment policies

A pernicious element of the Covid-19 crisis is that measures needed to save lives (strict societal confinement) cause maximum short-run economic damage.

This trade-off — between drastic containment and the continuation of normal economic activity — is confronting governments across the world and provoking a wide range of answers.

Forecasters are also beginning to flesh out what unparalleled social restrictions will mean for our economies. The hope underpinning the strategy is to “press pause on the economy, save lives, and then press play again”, writes Marcus Walker at the Wall Street Journal. In Spain, which has imposed a two-week suspension on all “non-essential work”, the government has taken to calling it a period of enforced economic “hibernation”. 

But can our economies simply jump-start after a period of coronavirus-enforced slumber? One of the main variables is the length and severity of the measures placed on households and businesses.

The Netherlands’ central planning bureau (CPB), which analyses government policy, is one of the first forecasters to attempt to model the impact. The CPB found that the relationship between the duration of restrictive measures and the corresponding impact on gross domestic product, the labour force and public finances is not directly linear (see table below). That is to say that every additional month of containment does not result in the same deterioration in economic activity.

For example, a restriction period of a month in the Netherlands will result in a loss of 1.2 per cent in growth in 2021; three months will result in 5 per cent shrinkage. A still more dramatic prolongation of confinement from six months to 12 months results in a marginally less severe contraction this year (-7.3 per cent instead of -7.7 per cent) but causes a protracted recession in 2021.

The modelling can help inform policymakers on the novel challenges posed by a pandemic compared with a financial or sovereign debt crisis. Simon Wren-Lewis, an economist at Oxford university, has some very useful pointers on the dynamics involved in a health crisis from his work on the economic impact of influenza in the 1990s. He says an important factor to consider is the possibility of permanent changes to people’s consumption habits (or “demand shocks” in the jargon) long after containment phase is over:

“A lot of our consumption nowadays can be called social, by which I mean doing things that bring you into contact with other people. Things like going to the pub, to restaurants, to football matches or travel.

One reason it is severe is that it is partly a permanent loss. Maybe you will have a few more meals out once the pandemic is over to make up for what you missed when you stayed home, but there is likely to be a net fall in your consumption of meals out over the year. What I realised when I did the analysis was just how much of our consumption was social.”

The probability of “V-shaped”, “U-shaped” or “L-shaped” recoveries will be heavily dependent on the magnitude of the policy response but also on the possible lasting impact that the containment measures have on human behaviour.

Economists at Deutsche Bank estimate that the eurozone is in line to suffer an 11.4 per cent GDP contraction in the second quarter of 2020. They think that the recovery — should restrictions begin to fall away in the second half of the year — will be a “gradual” return to pre-crisis times. The pace will be dependent on the degree of “scarring” present in the economy:

“We judge this on the basis of the rise in unemployment, which differs country by country depending on structural factors and the success of the policy response to keep businesses afloat and workers in jobs. Even by mid-2021, GDP is still expected to be running 3-4% below pre-virus levels in Italy and Spain.”

History can also offer some pointers — but not always ones that provide comfort. This fascinating study from the Federal Reserve of San Francisco examines the long-run economic impact of 12 global pandemics stretching back to the 14th century. They find that destruction caused to capital and labour suggest that “significant macroeconomic after-effects of the pandemics persist for about 40 years”.