Following a forecast of 0.9% in 2019, the Expert Group is expecting GDP growth of 1.7% in 2020 and 1.2% in 2021. However, both the acceleration of GDP growth in 2020 and the slow-down in 2021 will be due to the effect of major sporting events, which has little relevance for the stance of the business cycle. In 2020, the underlying momentum of the economy is set to be similar to this year, before increasing somewhat in 2021.

The international environment remains unfavourable. In particular, the weak growth can be expected to continue in the eurozone as well as in Germany, the single most important trading partner. Although certain segments of Swiss industry, specifically chemicals and pharmaceuticals, are currently not very exposed to economic developments abroad, the export sectors which are sensitive to business cycle fluctuations, such as the metal and machinery industry, would suffer from sluggish international growth. Overall, the Expert Group is still forecasting that exports of goods will see much weaker development in 2020 than in the previous four years.

As a result, utilisation of industrial production capacity will remain low at first, making firms likely to invest only hesitantly in equipment, despite still favourable financing conditions. The Expert Group is also anticipating restrained development for investment in construction, with climbing vacancy rates and the rather slow population growth to date curbing activity in the construction sector.

By contrast, the Expert Group expects growth in consumption to pick up moderately in 2020, supported by the healthy labour market. In the last few months, unemployment has developed somewhat more favourably than could have been assumed; the Expert Group is forecasting an unemployment rate of 2.4% (September forecast: 2.5%) for 2020. Employment is still anticipated to grow solidly. In addition low inflation is also bolstering households’ purchasing power. Slowed by the decline in oil prices, among other things, inflation is likely to come in much lower in 2020.

In 2021, the Swiss business cycle is set to brighten gradually, with the economy more or less growing at its potential rate. Global trade is expected to pick up a little in 2021 in the wake of a slight increase in global economic growth, which will also benefit Swiss exports and enable investment in equipment to recover. Meanwhile, the economic slowdown of the two previous years is expected to have a delayed impact on the labour market, with the unemployment rate expected to rise to 2.6%.

Economic risks
Economic downside risks continue to outweigh the upside potential, although some have decreased somewhat, at least in the short term. For example, the US and China are negotiating a partial solution to the trade conflict, which has persisted for over a year. The provisional deal between the EU and the UK has also reduced the probability of a disorderly Brexit.

However, a further deterioration in terms of both international trade policy and UK/EU relations cannot be ruled out. In particular, the Swiss economy would be negatively affected in the forecast horizon if the US were to impose punitive tariffs on more European goods in the coming year and if growth in the EU were to be slowed sharply following a disorderly Brexit.

As in the most recent forecast, there is also uncertainty in connection with the institutional agreement. Should Switzerland’s relationship with the EU worsen, its attractiveness as a business location and willingness to invest in the country could be impaired. In view of simmering imbalances, the risk of a major correction in the domestic real estate sector also still remains.

* Further information about the sporting event effect: Konjunkturtendenzen spring 2018 and autumn 2017.

Economy expected to brighten only in 2021