Coronavirus is slowing economic growth and weakening the economic situation

The corona crisis is putting a brake on Swiss economic growth

The Swiss economy is facing some difficult months. The coronavirus outbreak and the measures introduced as a consequence will put a brake on economic growth. There will almost certainly be a recession. By the end of the year, the economic situation should be able to recover again to some extent.

The virus will push Switzerland into a short recession

The coronavirus has the world economy firmly in its grip and is also likely to push the Swiss economy into recession. At least in the short term, it appears inevitable that economic output will shrink as a result of the lockdown ordered by the government and a fall in demand for exports. Credit Suisse is expecting a decrease in Swiss GDP of -0.5% in 2020 owing to the corona crisis.

Export industry is suffering from the difficult economic situation

The consequences of the crisis are likely to hit the Swiss export sector directly in the coming months. While the important Chinese market is likely to be through the worst, the key European trading partners and the US are only in the early phase of the downturn. In particular, the expected recession in Europe will sharply reduce demand for Swiss goods.

Overall, total exports by Swiss companies this year are likely to decline less than in the global recession in 2009. This is partly because pharmaceutical exports now account for a greater share of exports of goods. They react little to short-term economic fluctuations abroad and thus contribute to a degree of stability. Nevertheless, the anticipated slowdown in the global economy alone will reduce Swiss GDP growth by around 0.7%.

Pharmaceutical industry's growing share of exports supports economic situation

Pharmaceutical exports support the economic situation 

Pharmaceuticals' share of total exports has been rising for years

In CHF billion per year, pharmaceuticals' share in % (rhs)

Decrease in private consumption is putting a brake on economic growth

In the coming months, private consumption in Switzerland is likely to be affected even more severely. Around one-third of average consumer spending in Switzerland is on goods and services that are currently in less demand or that it is no longer possible to consume. But the share of consumption is expected to return to normal quickly as soon as the lockdown can be lifted.

This is because, on the one hand, the forecasts suggest a positive trend in nominal salaries and negative inflation, and on the other hand, the labor market situation, which is important for consumer sentiment, is expected to be stable. The unemployment rate is likely to increase only slightly to 2.9 percent by the end of the year – thanks to the use of short-time working. Nevertheless, average private consumption for the year is likely to fall again for the first time since 1993. This means that an important buffer for Swiss growth will disappear, at least temporarily.

Economic growth and private consumption will fall sharply in 2020

Corona outbreak will create serious difficulties for the economic situation in 2020

Outlook for Swiss economic growth

Source: Source: Swiss Federal Statistical Office (SFSO), SECO, Credit Suisse

Economic growth is likely to pick up again in 2021

In order to prevent an even deeper recession, the outbreak must be brought under control quickly. Another thing that is important for stabilizing the economy is that extensive measures are taken to cushion the effects of the necessary lockdown. In that case, the slump in economic output is likely to be weaker than that of 2009.

Assuming that the current exceptional circumstances only last until mid-May and are then eased again, the economic situation should brighten up again towards the end of 2020. In that case, there could certainly be an overshoot in growth in 2021 thanks to the global stimulus measures. However, should the pandemic persist longer than expected, weak growth in the longer term is probable.

Slump in economic growth will be weaker than in 2009

The expected recession will be weaker than in 2009

Expected slump in GDP caused by coronavirus by historical comparison

Source: State Secretariat for Economic Affairs (SECO), Credit Suisse