Coronavirus shrinking the economy

Bern, 19.03.2020 - Economic forecast by the Federal Government’s Expert Group – spring 2020 - The Expert Group expects Switzerland to plunge into recession in 2020. The spread of the new coronavirus in Switzerland and abroad is temporarily bringing parts of the economy to a standstill. Provided that the coronavirus situation stabilises, the economy should gradually recover from the second half of the year onwards. This would lead to high GDP growth in 2021, which, however, would still not allow the previously anticipated GDP level to be reached. Forecasting uncertainty is currently extraordinarily high.

The Federal Government’s Expert Group predicts a −1.5% decline in sport event adjusted GDP for 2020 (December 2019 forecast: +1.3%). Taking account of the international sporting events still currently planned, this corresponds to a GDP drop of −1.3%.

The Swiss economy is being affected by the spread of the novel coronavirus through various channels. On the one hand, the virus and the associated policy measures are having a significantly negative impact on key trading partners in the first half of 2020. The upturn in the global economy that had previously been expected has now been abruptly interrupted. Swiss industries vulnerable to this development, such as tourism and transport, but also manufacturing sectors sensitive to the economic cycle, have thus been affected by severely declining turnover. Moreover, production outages in other countries and tougher transport conditions are expected to negatively affect international supply chains. The Swiss franc has tended to appreciate since the start of the year in light of the extremely high level of uncertainty. Overall, the Expert Group forecasts that exports will fall sharply for the first time since 2009.

On the other hand, Switzerland is also being affected by the coronavirus directly. Rising numbers of cases in the country have necessitated health protection measures that are severely impairing parts of the economy – and the virus is expected to spread further. Many companies have to temporarily reduce or stop operations, particularly in accommodation and food services and in other service sectors. As a result, spending on leisure, travel, but also on durable goods has temporarily slumped. Despite certain catch-up effects in the further course of 2020, a decline in private consumption is expected for the whole year. Because of the uncertain environment and the declining capacity utilisation, companies may severely cut back on their investments and reduce employment. At the same time, unemployment is expected to rise significantly (yearly average: 2.8%, December forecast: 2.4%).

It is currently very hard to assess the scale of the spread of the virus in Switzerland and other countries and how it will progress over time. Provided that the coronavirus situation stabilises in the course of 2020, the Expert Group expects an economic upturn in the second half of the year and in the coming year. Economic activities and supply chains that had been temporarily interrupted could be largely resumed; exports would benefit from growing demand from abroad; employment, consumption expenditure and spending on investments would increase again, causing Switzerland’s GDP to grow again.

With the significantly lower GDP level in 2020 as a starting point, economic growth in 2021 would be stronger than expected in the previous forecast: +3.3%, with the 2021 growth rate unaffected by sport event effects (December forecast: 1.6% adjusted for sporting events). The Expert Group expects that, despite catch-up effects, GDP would be lower than the level that would have been expected without the coronavirus by the end of 2021. Strong effects can also be expected on unemployment throughout the entire forecast horizon (2021 yearly average: 3.0%, December forecast: 2.6%).

Economic risks
Forecast uncertainty is currently extraordinarily high. Should the virus spread further and thus necessitate even more severe restrictions on economic activity in the short term than anticipated, an even more drastic economic slump would be expected in 2020. In this case, however, there should also be stronger catch-up effects in 2021. Conversely, it is conceivable that deferred consumer spending will be made up for more in the course of 2020 than assumed in the forecast.

Should very drastic measures become necessary over a longer period of time to protect the population, however, severe economic consequences would have to be expected through-out the entire forecast horizon. Low demand from abroad and longer interruptions in supply chains would have prolonged follow-up effects in various sectors of the economy. The recovery would most likely set in later and follow a more halting course. The economy’s potential output would accordingly be hit harder.

The global spread of the coronavirus is also considerably magnifying several existing economic risks. In particular, given high levels of government and corporate debt, the risks facing the stability of the financial system could be intensified should the pandemic trigger widespread liquidity problems and defaults on loans around the world, particularly in the corporate sector. In addition, the risk of upheaval on the financial markets and further upward pressure on the Swiss franc is elevated.


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Last modification 12.02.2020

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