Forecast: rapid recovery following the gradual easing of coronavirus measures

Bern, 11.03.2021 - Economic forecast by the Federal Government’s Expert Group – March 2021. The Expert Group largely confirms its previous assessment. GDP is set to decrease in the first quarter of this year, but the easing of coronavirus measures should subsequently lead to a rapid recovery. Uncertainty remains extremely high.

The tightening of measures to contain the spread of the virus have been heavily impacting the affected sectors since late 2020. This has led to a collapse in business activity in parts of the service sector. The Expert Group therefore assumes that Switzerland's GDP will fall significantly in the first quarter of this year. However, a collapse of a similar magnitude to last spring so far seems unlikely.

Should the epidemiological development allow the gradual easing of coronavirus measures as intended, the domestic economy should recover very quickly. Various consumer opportunities that were largely unavailable in the winter months would reemerge and lead to turnover rising again in the affected sectors. At the same time, growing global demand is set to boost exports. The utilisation of production capacities will increase accordingly, which in turn will have a positive impact on investment activity within Switzerland. Overall, the Expert Group expects growth in GDP adjusted for sporting events of 3.0 % in 2021 (unchanged forecast). This would see the Swiss economy grow at an above-average rate by historical standards, and the pre-crisis GDP level being exceeded by late 2021. Unemployment is predicted to fall gradually and reach an annual average of 3.3 % for 2021 (unchanged forecast).

This forecast is based on the expectation that the planned easing of measures from spring 2021 onwards will largely be implemented as intended, and that any tightening of virus containment measures involving significant economic impacts will no longer be necessary.

Assuming these conditions are met, the economic recovery should also become more wide-spread as time goes on. Particularly vulnerable areas of the economy, such as international tourism, should also gradually find their way out of the current crisis. For 2022, the Expert Group therefore predicts an above-average growth in GDP adjusted for sporting events of 3.3 %. The international environment has become more favourable since last December’s forecast (3.1 %), which will also benefit the Swiss export sector. Employment is expected to rise considerably as the economy recovers, and unemployment is set to fall to an annual average of 3.0% (unchanged forecast).

Economic risks
The most significant uncertainties are those linked to the coronavirus pandemic, the possible responses of economic players and politicians to the situation, and second-round economic effects.

The recovery would be noticeably delayed if in the coming months further strict containment measures were to be introduced domestically and by key trade partners, for example due to backlogs in the coronavirus vaccination programmes.

We also cannot exclude the possibility that the pandemic will continue to affect economic development into 2022, such as through the spread of coronavirus mutations against which the existing vaccines are less effective. There could also be stronger economic second-round effects than assumed in the Expert Group’s forecast, such as large-scale job cuts and a high number of corporate insolvencies. The risks linked to government and company debt would also grow.

However, the coronavirus situation could also develop more favourably than expected internationally, particularly due to rapid progress in the vaccination programmes. Should this happen, the economic recovery could prove to be stronger over the course of 2021 than the Expert Group’s forecast predicts, particularly due to stronger catch-up effects in private consumer spending.

There are also risks to the world economy due to international trade conflict. There is still a certain amount of uncertainty with regard to the relationship between Switzerland and the EU in connection with the institutional agreement. Finally, there is still a risk of more major corrections in the Swiss real estate sector.

Note:
Because of the great uncertainty the SECO completes the economic forecast of the Expert Group with three updated economic scenarios. They are to be found in the economic forecast section of the latest edition of « Konjunkturtendenzen » (in German) at
www.seco.admin.ch/economic-forecasts.

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