The Expert Group on Economic forecasts is expecting GDP adjusted for sporting events to fall by 6.7% in 2020 (March 2020 forecast: −1.5%) and unemployment to average 3.9% over the year as a whole. This would make it the biggest slump in economic activity since 1975.

Rising numbers of Covid-19 cases in Switzerland necessitated farreaching health policy containment measures in mid-March. Many companies in sectors including hospitality, retail, culture and leisure were forced to restrict or completely suspend their business activities, triggering an abrupt decline in production and private consumer expenditure. At the same time, the international environment has deteriorated rapidly, with some international supply chains disrupted. A very sharp fall in GDP is expected for the first half of 2020.

A modest recovery should set in with the planned relaxation of health policy measures. However, losses of income caused by an increase in short-time working and rising unemployment as well as the considerable economic uncertainty will limit the amount of lost ground that private consumption will be able to make up in the second half of the year. Precautionary measures imposed by the authorities, businesses and the public to prevent coronavirus infections are likely to further dampen appetite for consumption. Overall, private consumption could fall even more sharply than GDP in 2020.

The Expert Group is also expecting the global economy to mount only a sluggish recovery in subsequent quarters, with key trading partners, chiefly the major southern European countries, facing a particularly fierce battle against lasting consequences of the coronavirus crisis. This will hit the segments of Swiss foreign trade that are sensitive to the economic cycle particularly hard. All in all, production capacity in Switzerland is likely to be significantly underutilised and uncertainty extremely high, resulting in a very sharp decline in investments as well as job losses.

Assuming that the health policy measures can be eased further, that further strong waves of the pandemic necessitating similarly restrictive measures do not materialise and that the second-round economic effects in the form of lay-offs, defaults on loans and corporate bankruptcies remain limited, the Swiss economy should continue its fragile recovery in 2021. Production activities and supply chains that were temporarily suspended are likely to be resumed little by little, while exports will benefit as demand from abroad slowly returns to normal levels. There should also be a gradual recovery in consumption expenditure and spending on investments within Switzerland.

The Expert Group is expecting Swiss GDP to grow by 5.2% in 2021 (March forecast: 3.3%). This would be a relatively slow rise from a very low starting point, meaning that the level of GDP seen at the end of 2019 would not yet have been reached by the end of the forecast period. An improvement to the situation on the labour market is also expected to be hesitant at best: unemployment is set to rise further to 4.1% in 2021, with employment only likely to see a minimal rise.

Economic risks
For March and April, few hard data are yet available, hence it remains difficult to quantify precisely the decline in economic activity. For the further course, forecast uncertainty is extraordinarily high.

On the one hand, the economy could recover faster than the forecast assumes, if, for instance, Swiss consumers prove to be less unsettled by the coronavirus or other countries make up lost ground more strongly than anticipated. On the other hand, the pandemic and associated containment measures could last longer than predicted, which would slow the recovery significantly. There could also be more severe second-round effects such as veritable waves of lay-offs and bankruptcies, which would have major economic consequences throughout the entire forecast period.

The Covid-19 pandemic is also magnifying existing economic risks. In particular, government debt is rising rapidly around the world as a result of the stabilisation and bridging measures required. The debt ratio of companies is also rising sharply. With many countries already heavily in debt and the poor economic prospects, the risk of defaults on loans and insolvencies of companies is increasing, which could threaten the stability of the financial system. In addition, there is a significantly greater risk of upheaval on the financial markets and further upward pressure on the Swiss franc. Finally, the risk of corrections in the Swiss real estate sector is also rising.

GDP set for sharpest fall in decades