The global economy is entering a new phase marked by fiscal expansion and a focus on industrial policy, according to the latest sigma report from Swiss Re Institute.
While supportive fiscal and monetary measures are helping to offset the effects of trade tariffs, these policies are contributing to higher inflation and increasing debt levels. The report projects that real global GDP growth will remain stable from 2025 onward, but will fall below the 3.1% average seen in the decade before the pandemic.
Jérôme Jean Haegeli (pictured above), group chief economist at Swiss Re and head of Swiss Re Institute, noted that industrial policy is changing the economic landscape, with artificial intelligence accelerating and growth appearing strong.
“The re-industrialization drive and technological transformation are powering activity and supporting the core of underwriting, yet headline economic growth figures mask deeper structural fragilities that will surface once the credit cycle turns.” Haegeli added that the economy is expected to experience a short-term slowdown, with tariffs continuing to influence prices in the United States and exports globally.
Trade policy remains a significant factor in the global outlook. In May, a 90-day tariff de-escalation agreement between the United States and China provided some relief to shipping volumes, which had been subdued the previous month. However, Swiss Re maintains that an effective tariff rate of 15% persists, and sector-specific adjustments are still being discussed.
Swiss Re highlights a shift toward greater reliance on industrial policy, which is expected to keep inflation above pre-2020 levels and maintain higher long-term bond yields. The risk of fiscal dominance – where central banks focus on debt stability over price stability – remains elevated, driven by sustained industrial spending.
In the United States, real GDP growth is forecast to slow to 2% by 2026 and 1.9% by 2027. The Euro area is expected to benefit from fiscal stimulus, including Germany’s €1 trillion investment program, with growth rates of 1.3% in 2026 and 1.5% in 2027.
China’s growth is projected to moderate to 4.5% in 2026 and 4.2% in 2027, reflecting weak domestic consumption and challenges in property-linked investment, despite a more accommodative policy stance. Emerging Asia is expected to remain resilient, supported by flexible monetary frameworks and trade re-routing.
Industrial policy has become central to national economic strategies, with government interventions in industrial sectors tripling since 2012. This trend has sparked a global competition for technological and manufacturing leadership. The shift is increasing domestic investment, particularly in semiconductors, AI infrastructure, and defense, but is also leading to greater fragmentation and concentration risk.
For insurers, this environment presents new opportunities in engineering, property, and liability lines, but also increases the likelihood of correlated exposures during shocks.
Artificial intelligence is driving operational changes across both non-life and life insurance sectors. The Swiss Re Institute estimates that by 2025, insurers worldwide will allocate 3-8% of their IT budgets to AI development. These investments are aimed at improving efficiency, saving time, and enhancing workflows.
However, fewer than 5% of insurers surveyed have reported any financial impact from AI initiatives. The report suggests that significant labor market disruptions are unlikely in the near term, as most insurers are using AI to augment rather than replace human workers. Insurers face the challenge of modeling and pricing risks without historical precedents, even as they seek to use AI to improve underwriting and claims processes.
Global insurance premiums are projected to grow by 2.3% in real terms in both 2026 and 2027. The non-life sector is expected to see real premium growth slow to 1.7% before rebounding to 2.5% in 2027. Profitability is forecast to remain steady, with a return on equity of around 10.5%, supported by investment yields of 4.3% and disciplined underwriting.
In the life insurance sector, global premiums are expected to increase by 2.5% per year, up from 2.2% in 2025. Higher long-term bond yields are set to boost investment income and profitability, with the sector’s return on investment rising to 4% in 2027. Global life premium volumes are projected to reach US$4.1 trillion by 2027, representing 44% of total market premiums.
