What’s been happening in the commercial world over the last two weeks? Read on to find out!
This week, the Supreme Court issued a landmark ruling brought by the Financial Conduction Authority (FCA) and an action group. This means insurers must now pay in disputed COVID-19 business interruption claims. These are reported to be worth at least £1.2bn, affect an estimated 370,000 companies and six of the world’s largest commercial insurers.
The case comes after a broad range of firms such as beauty parlours, pubs, cafes and other small businesses were not awarded a payout from insurers for business interruption throughout last year, after which many faced the prospect of ruin. Now, Hiscox, RSA, QBE, Argenta, Arch and AS Amlin must ‘substantially allow’ the business interruption claims as part of their widespread disruption policy. Reputationally, insurers have suffered – Hiscox shares were trading 4% after the judgement. In the short-term, insurers need to re-phrase their policies to provide greater clarity and less scope for misinterpretation about the extent of cover. However, in the long-term, both small businesses and insurers appreciate the ‘leapfrog’ process to reach a decision quickly.
Talking point: Do you agree with the Supreme Court ruling? Why/Why not?
International joint operation Eurostar has written to the Treasury and Department for Transport in search of a bailout, after passenger numbers plummeted by 95% from March-November 2020. Since then, numbers remain low with only two services a day running from London to Paris and Brussels. Despite a series of cash injections from fund managers and other investors totalling £178m, executives still predict the company may run out of cash by mid-summer 2021. As such, Eurostar believes it will only survive with additional government funding. In the letter, Eurostar laid out its plea by promoting the high-speed rail service’s work to reduce carbon emissions, labelling itself the ‘green gateway to Europe’.
There is an additional element here, engaging international relations. Currently, the French state rail firm SNCF has a 55% stake in Eurostar. The UK sold its stake to private companies in 2015 for £757m. Head of SNCF Voyageurs, Christophe Fanichet believes such composition has led some in the UK to view Eurostar as a French business. This, in part, is true – some analysts believe Eurostar should be rescued by the French state and recapitalisation from shareholders, not the British taxpayer.
Talking point: Is the Eurostar worth saving through a government bailout?
Official figures show that China could be the only major economy to have expanded in 2020. Although 2.3% marks the slowest rate of annual growth for the country in 40 years, this achievement has come despite the disastrous financial implications of COVID-19 as well as ongoing trade wars and their accompanying tariffs and sanctions. Whilst China did suffer a 6.8% contraction in the first quarter of the year as the first country to see the full effects of the virus, it made a quick recovery rebounding to a growth of 6.5% by the last quarter of the year. This can be largely attributed to industrial production, which rose by 7.3% in December 2020 alone. Analysts believe the Chinese economy is now growing faster than before the pandemic and has led China’s stock market to rally – the CS1 300 is at its 13-year high.
According to an OECD report, no other major economy is forecast to have seen a growth in 2020. Of the G7, the US is expected to have performed the best with a contraction of only 3.7%, followed by Japan, Canada and Germany with contractions of 5.3%, 5.4% and 5.5% respectively. Bringing up the rear are France and Italy with a predicted contraction of 9.1% and finally the UK, with a contraction of 11.2%, a figure likely to have been particularly affected by both COVID-19 and Brexit.
Why did China recover so quickly? Two key reasons:
1) The government quickly launched a sizeable fiscal stimulus of 3.6 trillion yuan ($500bn), which boosted investment in real estate and infrastructure.
2) A growth in overseas consumer demand for medical equipment and work-from-home devices. This led exports to expand by 3.6% in 2020 compared to the previous year.
Such a strong response to the pandemic in contrast with other major countries has led some analysts to predict the Chinese economy may overtake that of America by 2028. A report from the Centre for Economics and Business Research (CEBR) has made the following predictions over the two nations:
– The US: a strong post-pandemic rebound in 2021, a growth of 1.9% annually from 2022-24, a growth of 1.6% from 2025-2028
– China: a growth of 5.7% annually until 2025, a growth of 4.5% annually from 2026-2030
Talking points: Whilst China’s COVID-19 approach has been a success from a macroeconomic perspective, how did the fiscal stimulus help individuals living in China? By 2028, will the average citizen in China wealthier than the average citizen in America? What other countries may be set to rise up the economic league?
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