However, less than 5% of the losses were insured, compared to 40% in developed countries2. Over the last five years, the region experienced a series of high-profile and very painful disasters such as the Tohoku Earthquake and Tsunami in Japan, floods in Thailand, and the Super Typhoon Haiyan in the Philippines. Losses from these three disasters are estimated to be close to USD 360 billion3, about the average GDP of the Philippines and Thailand in 2012. As these economies were underinsured, the bulk of the financial burden was ultimately borne by the governments. 4. The development of catastrophe risk management in Asia is still at a nascent stage, compared to more mature markets in the US and Europe. Yet Asia is expected to continue to experience a rise in natural catastrophe losses, as a result of climate change, and rapid population growth, urbanization as well as economic concentration in heavily exposed regions. So With this confluence of factors, the financial burden from natural catastrophes is expected to intensify. 1  “Source: EM-DAT – The International Disaster Database”. 2  “Risk Financing is Key to Building Resilience Against Disasters – Study”, ABD, 31 January 2013. 3  “Based on Swiss Re and Aon Benfield’s estimates”. BIS central bankers’ speeches  1  Minding the protection gap in natural catastrophe risk management 5. Going forward, governments can no longer act as the “insurer of last resort”.
The effects of this angst are already showing up in the investment numbers. An additional fly in the ointment, if you will, is the recently released downward revision for GDP growth covering last year and an announced estimate of a sizable downward revision to payroll employment. One implication of these revisions is that the economy’s underlying momentum was already somewhat less robust than previously thought, even before recent developments pointed to a less rosy outlook. The Path Forward So what will the response from the Fed be to all of these developments? Our role is to navigate a complex and at times ambiguous outlook to keep the economy growing and strong. As events unfold and conditions evolve, it’s critical we understand which developments are mere bumps in the road and those that will affect the outlook in a material way over the longer term. That means maintaining a data-dependent approach that takes into account the risks and uncertainty that are weighing on the economy. I will continue to consult everything from very granular data about individuals’ experiences of employment conditions, through to the macro projections for global growth. We need to consider all of the information available and be flexible in our response. Conclusion Low inflation is indeed the problem of this era. The current outlook of moderate growth, low unemployment, but stubbornly low inflation is a reflection of the broader economic picture—the July rate adjustment an appropriate response to ease financial conditions and support the economy.