Economic forecast by the Federal Government’s Expert Group – June 2020.
The Expert Group is largely confirming its previous assessment and expecting the sharpest fall in GDP in decades for 2020. The low point is set to be reached in the second quarter. Provided that further waves of the pandemic with severe containment measures do not materialise, the economy should begin to recover from the second half of the year.
The Expert Group on Economic Forecasts is expecting GDP adjusted for sporting events to fall by –6.2 % in 2020 (April 2020 forecast: –6.7 %) and unemployment to average 3.8 % over the year as a whole. This would make it the lowest economic slump since 1975.
In the wake of the health policy measures that became necessary in mid-March to contain the coronavirus, many companies were forced to restrict or completely suspend their business activities, triggering a sharp fall in GDP as early as the first quarter of 2020. For the second quarter, in which economic activity was affected by the measures for a longer period of time, the Expert Group is expecting an even bigger slump in economic output. However, thanks to the rapid decline in Covid-19 case numbers, the health policy measures could be eased somewhat more quickly from the end of April than had been assumed in the most recent forecast. The short-term prospects have therefore brightened compared with the April forecast.
For the rest of the year, the Expert Group is expecting only a limited recovery, as in the most recent forecast. Households are suffering losses of income caused by an increase in short-time working, rising unemployment and a decline in employment. The considerable economic uncertainty and protective measures to prevent coronavirus infections are likely to further restrict the consumption expenditure of private households.
Negative international economic development has also hit the segments of Swiss foreign trade that are sensitive to the economic cycle. The global economy has fallen into recession. In some major economies, it has not yet been possible to control the coronavirus pandemic. The economic losses incurred to date, as a result of the measures to fight the pandemic are also very severe, which is slowing economic recovery. Overall, the Expert Group is therefore expecting international economic activity to mount a sluggish recovery, with key trading partners, chiefly the major southern European countries, facing long lasting consequences of the coronavirus crisis.
Due to the underutilised production capacity, the deterioration of businesses’ financial situation and the high level of uncertainty, a significant reduction in investment in equipment is also likely for 2020 as a whole.
In 2021, the Swiss economy should continue its moderate recovery. The Expert Group is expecting GDP to grow by 4.9 % (April forecast: 5.2%), assuming that no renewed intensification of the health policy measures becomes necessary, that the second-round economic effects in the form of lay-offs and corporate bankruptcies remain limited and that demand from abroad returns to normal levels little by little. Consumption expenditure and spending on investments within Switzerland should then recover gradually. An improvement to the situation on the labour market is expected to be slow at best: unemployment is set to rise further to 4.1 % in 2021, with employment only likely to see a minimal rise.
The course the economy will take hinges on the progression of the pandemic. Forecast uncertainty therefore remains extraordinarily high.
On the one hand, the economy could recover faster than the forecast assumes, if, for instance, the measures are relaxed more quickly, 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 could flare up again in Switzerland and key trading partner countries, which would necessitate more severe containment measures. This would slow the recovery and increase the probability of more serious second-round economic effects such as large waves of lay-offs and bankruptcies, which would have major economic consequences throughout the entire forecast period.
As result of the stabilisation measures required, government and company debt is rising rapidly around the world, increasing the risk of default on loans and insolvencies of companies. This could ultimately threaten the stability of the financial system. The risk of upheaval on the financial markets and further upward pressure on the Swiss franc is high.
The international trade conflict poses further risks to the global economy. Finally, there is still a risk of major corrections in the Swiss real estate sector.