The Swiss economy has surpassed the previous 2020 forecast by economists at Credit Suisse, which was fairly optimistic. The economists now expect GDP to decrease by "only" 3.2%. Although a vaccine is likely to be rolled out soon, it will take a number of months before the pandemic is under control and the economy achieves a sustained recovery. For 2021, economists at Credit Suisse still expect GDP growth of 3.5%. The Swiss economy's resilience in the face of the coronavirus crisis also reflects the high level of agility of Swiss SMEs, as indicated by the results of this year's SME survey.

The development of the Swiss economy has so far resembled a yo-yo movement, reflecting the effects of the COVID-19 pandemic: The largest decline in gross domestic product (GDP) on record occurred in the second quarter of 2020 (-7%) and this was followed by its strongest recovery (+7.2%) in the third quarter. However, the recovery has since lost a great deal of momentum again. In light of the second coronavirus wave and the renewed measures to restrict the spread of COVID-19, economists at Credit Suisse expect to even see a slight reduction in GDP in the fourth quarter (-0.7% compared to the previous quarter). However, this decrease is likely to be much less significant than in the spring. Swiss GDP will fall by 3.2% (annual average) according to the current Credit Suisse forecast – i.e. it will experience a decline that is similar to the financial crisis of 2009 (-2.1%).

The pandemic will cost two years of GDP growth
In contrast to the financial crisis, however, a rapid recovery is still expected. For 2021, economists at Credit Suisse are still forecasting GDP growth of 3.5%. At the start of next year, economic momentum is likely to remain extremely modest. However, over the winter the vaccine is likely to be gradually rolled out on a larger scale. This should mean the step-by-step relaxation of government restrictions and self-imposed rules, which will be reflected by greater mobility and economic momentum in the spring. The knowledge that the crisis is finite should mean that in the winter months, sluggish economic developments do not lead to a large number of job cuts. Economists at Credit Suisse anticipate that unemployment will rise to a maximum of 3.7%. The decline in investment is also not expected to last for a prolonged period. It is true that cyclical industries, such as the metal, electrical or watchmaking sectors, may slow down for a time. However, thanks to demand from Asia, which is supporting the global demand for goods, there is little chance of a significant drop in industry such as the decline seen in the first half of 2020. Furthermore, investment among pharmaceutical and chemical companies – which continue to expand – and in IT infrastructure will remain buoyant. Construction investments should also increase slightly in Switzerland during 2021 – new orders placed with building contractors have recently increased significantly. Overall, Swiss GDP will therefore come close to pre-crisis levels by the end of 2021. The pandemic has probably cost two years of growth, or nearly CHF 20 billion.

Conditions before the second coronavirus wave were challenging for most SMEs
Economists at Credit Suisse have used the pandemic as an opportunity to conduct a survey of more than 1,000 Swiss SMEs. According to the SMEs that responded in early October, thanks to the rapid availability of government stimulus measures, such as short-time working and emergency loans, some of the economic losses during the first wave of the pandemic have been compensated for. As a result, most SMEs have not so far been forced to cut jobs. However, more than half were working at below pre-crisis levels or were in an acute crisis management phase this fall.

Coronavirus pandemic: Transforming the Swiss SME landscape
"Necessity is the mother of invention," as the saying goes, and the coronavirus crisis appears to be proving it in many cases. Since the crisis began, nearly half of the SMEs surveyed have made changes to their business models. For 24% of SMEs, the changes to their business models will continue even after the crisis. Hence, the prevailing challenges do not necessarily have a destructive impact; they also have the effect of enabling growth. For 11% of respondents, the pandemic is even seen as an opportunity and their business has performed better than before the crisis. Furthermore, the SME survey revealed that investment has not come to a halt. Despite – or because of – the COVID-19 pandemic, 59% of Swiss SMEs are planning to make investments in the next 1–3 years in order to pave the way for future growth. Nearly all SMEs see a need for investments in the area of digitalization in the next 1–3 years. Equally, the importance assigned to environmental sustainability will not decline: Three-quarters of companies want to maintain or even increase their sustainability efforts in the next 1–3 years. Although the past few months were not the main driver of developments such as the digitalization of daily operations or the focus on sustainability, these trends are likely to boost activity due to the experiences companies have had this year.

Evolution, not revolution
The picture is similar regarding the increased use of flexible working models: After the crisis, the use of a home office is likely to become more common among SMEs than it was before, but the increase will not be dramatic. Only a minority of the companies surveyed have already reduced their office space or plan to do to so in the near future. Evolutionary developments of this kind are also happening with regard to modified value chains. According to the survey results, Swiss SMEs have made only slight changes in this regard. In the next 1–3 years, however, further adjustments are likely, with a focus on renegotiating terms and conditions with upstream suppliers and diversifying the range of supply partners, as well as the greater use of suppliers who are located in closer proximity. Overall, Swiss SMEs will take stability and cost efficiency increasingly into account when looking at their value chains.

The publication "Swiss SMEs actively seeking a way out of the crisis" is available online in German, French, and English: www.credit-suisse.com/smestudy

"Monitor Switzerland" is published every quarter. The next issue will be published on March 16, 2021.