Swiss economy: Conditions starting to improve in Switzerland

Swiss economy still needs time to fully recover

The Swiss economy took a tumble due to the coronavirus crisis. Now that the lockdown has eased up, the Swiss economy is already showing initial signs of recovery. We will need to be patient for things to fully return to normal, though.

Swiss GDP takes a tumble, households are saving

In the first quarter of 2020, Swiss gross domestic product (GDP) fell 2.6 percent quarter over quarter. This is the sharpest decline since this data was first collected in 1980. Nevertheless, the financial conditions of most households looked better in late May than expected given the economic downturn. The reason for this is that the lockdown resulted in restrained consumption. In Q1 2020, consumer spending fell 3.5% quarter over quarter. The slump is likely to be even more pronounced in the second quarter. As a result, many households managed to save money during that time.

The savings rate – the ratio of savings to income – rose from around 13 percent to 22 percent, thus marking a record high. Credit Suisse projects that households will spend around 5.5 billion Swiss francs of their savings in the next few months. This would recoup roughly half of the decline in consumption.

Swiss economy: Savings rate marks record high

Swiss economy: Savings rate marks record high 

Source: Swiss Federal Statistical Office; from 2019 on: Credit Suisse estimates

Consumption will take time to fully recover

Even just after the lockdown was eased, indicators suggest consumption is starting to recover in Switzerland. Roughly two weeks into the second phase of reopening, the Purchasing Managers Index (PMI) for the service sector has already gained back nearly half of its decline in March and April, for instance.

It is presumed that the second half of the recovery will be much slower, however. This is, first of all, because physical supply in shops and businesses is still limited. Second, fear of infection and of job loss is hurting consumer sentiment. And third, immigration to Switzerland is slowing due to the closed borders and fewer new hires. Credit Suisse thus projects a 2.1 percent decline in private consumption overall this year.

Exports not falling in all sectors of the Swiss economy

The foreign trade figures differ widely from one sector to the next. According to the State Secretariat for Economic Affairs (SECO), total Swiss goods exports grew 3.4 percent in Q1, even though industrial sector exports dropped considerably. This was the result of the pharmaceuticals sector's heavy weighting and its minimal short-term sensitivity to the business cycle.

Export of goods subject to major differences in each sector

Sharp differences in the export of goods among sectors

Change in the export of goods since December 2019 by sector, seasonally adjusted values of goods

Source: Swiss Federal Customs Administration, Credit Suisse

Most of the export sectors are likely to have passed the trough soon. After all, exports in the engineering, electrical, and metal industries in countries that already eased their coronavirus restrictions some time ago suggest stabilization is in sight in Europe. However, global trade is likely to suffer from sluggish demand and diminished transport capacities for some time still. Swiss GDP will be affected by this less than the export slump suggests, though, since imports are falling as well – both in consumer goods and in the industrial sector.

Investments likely to bottom out soon

Companies were forced to halt any investments that were not immediately necessary during the lockdown. As a result, capital spending on machinery and equipment fell 4.0 percent in the first quarter, and according to Credit Suisse estimates, will continue to drop in the second quarter. Some relief is likely to come as the restrictions are lifted. This is suggested by the PMI for the Swiss industrial sector bottoming out shortly after reopening and by developments in the Manufacturing PMI in Asia, where the lockdown ended some time ago.

Manufacturing PMI indicates relief for Swiss economy

Manufacturing PMI indicates relief for Swiss economy

PMI > 50 = growth; real capital spending on machinery and equipment (year over year)

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

Swiss economic recovery slowing down

With the gradual lifting of the lockdown, the Swiss economy is starting to immediately recover. After an initial surge, though, the return to normal is likely to be rather sluggish. Given that there are always many silver linings on the horizon, Credit Suisse estimates Swiss GDP will drop a comparatively low 4.0 percent in 2020. However, the experts anticipate the recovery in 2021 will not be strong enough to bring GDP back up to pre-crisis levels by year-end.