EU Asset Management After an Unprecedented Period

Nowadays there is a very popular expression that the world will never be the same again. Let’s see if the current pandemic is really something extraordinary and what may change after it ends.
Indeed, pandemics for humanity are not uncommon throughout history, and outbreaks of plague, various flu and smallpox have claimed millions and tens of millions of lives. Unless the current situation deteriorates sharply, the coronavirus will not come close to its predecessors. However, this does not mean that the threat is not serious: SARS-CoV-2 has already come out on top among viruses in terms of current mortality.

However, the end of the pandemic already has sufficiently substantiated forecasts: from one month in the optimistic scenario and up to three months in the most pessimistic one. They are being built on the successful example of China, which has already announced the end of the epidemic, and in terms of the number of patients now, the country has dropped to 49th place. In addition, quarantine measures have stabilized the situation in Europe, and soon positive signals are expected from the United States.

The biggest question is the economic aspect. Since the modern economy has not yet encountered such a thing, no one can now predict the consequences, just as it is difficult to determine which measures the state should implement. The share of small and medium-sized businesses in Europe is 50-60%. Therefore, it is quite logical that our state is more concerned about the work of large enterprises, and European governments are doing their best to support the purchasing power of the population. Which approach will turn out to be correct, we will not see until the end of the year.

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Forecasts for the near future and major changes in the field of asset management

With a significant economic loss, many companies turned out to be ready for this? The fact is that the world has been waiting for a crisis for a long time and was preparing for it, the period of growth dragged on, and everyone tried to protect themselves as much as possible during new shocks. As a result, no one was ready specifically for the virus, but the financial steps being taken were ideally suited to the current situation. The same can be said for the investment community, very many at the end of 2022 increased the share of cash and low-risk assets in anticipation of a recession.

The high volatility in the markets is explained precisely by the fact that everyone is looking for the best moment to buy assets, everyone has numbers in front of their eyes on the number of cases, and any hints of a possible breakdown of the trend lead to massive purchases. These fluctuations in the market will continue in the future, when fresh macroeconomic statistics will be released, by which it will be possible to assess the damage caused. That is, industrialists are already waiting for the start of growth in their country.

More than half of European companies hit by contractors in the pandemic

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More than half of organizations (51%) have suffered from one or more incidents related to non-fulfillment of their obligations by counterparties (suppliers of goods and services, distributors, contractors) since the beginning of the COVID-19 epidemic (since the official announcement of the pandemic in the world – March 11, 2022 of the year). These findings follow from the Third Party Risk Management survey in 2022, conducted by the international network of Deloitte among more than a thousand representatives of companies from different sectors of the economy from 30 countries. The company announced this on November 25, 2022.

Of these incidents, 13% had serious consequences that adversely affected the financial/profitability of the company, affected the quality of customer service, or resulted in gross violations of regulations. 31% of incidents had moderate impact, another 46% had limited impact, and 10% of respondents were unsure if a third party was involved.

Key challenges for the European asset management sector during the COVID-19 pandemic

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Rapidly changing economic and financial situation of clients due to slowdown in economic growth.

  • Unexpected liquidity problems for enterprises that had previously time did not show signs of financial instability.
  • Growth of losses of the loan portfolio.
  • Traditional financial data of companies (semi-annual reports) will reflect problems too late.

Possible solutions

  • Selective analysis of enterprises (large to small) as support for current banking resources;
  • Assessing the impact of the pandemic on the future situation (recipients, suppliers, inventory, imports and exports of goods, employee safety, business continuity, revenue generation, etc.).
  • Implementation of customer monitoring process and improvement of SBR based on external data sources, tax data, automatic scanning of information from media sources and the development of algorithms for analyzing client data based on current accounts.

Mitigate the socio-economic impact of the epidemic

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Heads of State and Government have taken a range of measures to coordinate our public health efforts, protect EU citizens and mitigate the socio-economic impact of the epidemic:

  1. Have medical equipment (protective equipment, ventilators and laboratory kits) in common possession by creating the first general stock of medical equipment and concluding general government contracts for the purchase of personal protective equipment. This also requires a coordinated effort to increase production capacity. At the same time, a requirement was introduced to obtain a permit for the export of personal protective equipment outside Europe.
  2. Join forces to help European citizens temporarily outside the EU to return home.
  3. To facilitate the movement within the EU not only of goods and products by establishing priority supply corridors at internal borders, in particular hospitals, shops and factories, but also, when necessary, to facilitate the movement of people, especially border workers or European citizens returning home.
  4. To redistribute 37 billion euros from the EU budget in connection with the crisis in the framework of the cohesion policy.
  5. Support businesses and workers by relaxing government aid rules.
  6. Suspend the Stability Pact to allow Member States to deviate from budgetary rules in a pandemic.

The practical implementation of these measures is in the hands of the European Commission. Additional measures are currently being discussed at the European level to combat this unprecedented crisis.