We are living in a world which compels us to constantly take risks.
There are times where these risks we take reward us greatly. Other times, risks will not pay off as planned. The ability to bounce back when things don’t go our way is desirable. Such an ability is called resilience.
The following are the world’s 10 most resilient countries, based on their Swiss Re Institute – London School of Economics (SRI-LSE) Macroeconomic Resilience Index (E-RI):
- United States
- United Kingdom
The E-RI is a product of reinsurance company Swiss Re’s study, Indexing Resilience: A Primer for Insurance Markets and Companies.
What is resilience and how is it measured?
Swiss Re formally defines resilience as: “the capacity of an economy or society to minimise income and asset losses resulting from shock events.”
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Clearly, resilience is a subjective concept. In order to make a metric for resilience, the components which determine resilience should be expressed in numerical terms.
In the case of Swiss Re, the metric they created is the E-RI. This index is a value from 0 to 1.
A value of 0 represents the minimum possible resilience, while 1 represents the maximum possible resilience.
In order to compute for a country’s E-RI, Swiss Re chose nine benchmarks which they deemed suitable for quantifying the aspects of resilience:
- Fiscal space (35%)
- Monetary policy space (15%)
- Banking industry backdrop (18%)
- Labour market efficiency (12%)
- Financial market development (10%)
- Economic complexity (4%)
- Insurance penetration (2%)
- Human capital (2%)
- Low carbon economy (2%)
These nine components are given percentage weights. The total weighted score of each of the nine components will be the E-RI value for the particular country.
In their study, 31 countries were given E-RI scores and were ranked by Swiss Re.
Seated on the top of the list is Switzerland, garnering an E-RI value of 0.84. This is followed by Canada (0.81), the US (0.79), Finland (0.77) and Norway (0.75).
Switzerland and Canada’s E-RI declined if contrasted to 2007’s 0.89 and 083, respectively.
These were given prior to the onset of the 2007-2008 global financial crisis. However, Swiss Re also noted that these two countries have the fastest recovery rates right after the crisis.
These two countries consistently place within the Top 3 in the previous years. Swiss Re identified four key strengths of Switzerland and Canada which kept them on top:
- Strong public finances
- Well-developed financial markets and high insurance penetration rates
- Low inequality through efficient labour markets and dynamic social mobility
- Sound banking industry backdrop
For all the things these two countries are good at, they remain to have a fatal flaw — they lack monetary policy leeway. In this component, Switzerland scored a measly 0.10 while Canada gained a low 0.18.
Room for improvement
Here we see that even those in the pinnacle of resilience right now still have weaknesses they need to work on.
Swiss Re also points out that even if there are countries that are exceptionally resilient, this does not equate to them being capable of single-handedly withstanding all sorts of risks. The E-RI only serves as a guide for countries to determine which aspects of resilience should they be working on.
On the whole, it is a given that each country should step up their game in making themselves resilient. Though, as the adage goes, no man is an island.
The highest form of resilience can only be attained when everyone recognizes that to bounce back from shock is a global, collective effort. We do not have to do everything alone.