Forecast: second coronavirus wave interrupts economic recovery

Bern, 15.12.2020 - Economic forecast by the Federal Government’s Expert Group – December 2020 - In the winter half-year of 2020/2021, the second wave of the coronavirus will have an adverse effect on the Swiss economy. The Expert Group is therefore revising its GDP forecast for the coming year downwards. If the health situation eases, growth is likely to increase significantly as time goes on, although uncertainty remains extremely high.

Rising case numbers and the measures to combat the coronavirus will slow international economic development considerably in the winter half-year of 2020/2021, especially in Europe. In general, however, less dramatic containment measures have been taken than last spring and the overall economic impact is likely to be less severe.

The Expert Group is therefore assuming that Switzerland’s GDP will decline in this fourth quarter, but no real slump in the Swiss economy will materialise. The latest GDP data also shows that Switzerland’s economy has made it through the last three quarters in somewhat better shape than previously thought. In this context, for 2020 as a whole, the Expert Group is expecting GDP adjusted for sporting events to fall by – 3.3 % (October forecast: –3.8 %). This would be the strongest decrease since 1975. The average unemployment rate for the year is likely to be 3.2 %.

The start of 2021 is also set to be affected negatively by the spread of the coronavirus and the associated measures. Accordingly, the Expert Group is revising its forecast for 2021 downwards and is now anticipating growth in GDP adjusted for sporting events of 3.0 % (October forecast: +3.8 %), which however is still well above the long-term average. In particular, economic growth should significantly increase in the course of 2021, and Switzerland’s economic output should return to its pre-crisis level towards the end of the year. Unemployment is due to rise further in the short term and come to an annual average of 3.3 % for 2021.

This forecast is based on the expectation that the health situation will gradually return to normal from spring 2021, after coronavirus vaccines become widely available, for example. Under this condition, temporary above-average GDP growth would then be likely, as some delayed consumption expenditure and spending on investments would be made up and, in the course of the global economic recovery, exports of goods would pick up noticeably in particular.

As time goes on, the economic recovery in Switzerland should also become more widespread. Assuming that hardly any measures to contain the coronavirus are required in 2022, even particularly vulnerable economic sectors such as international tourism should find their way out of the crisis. For 2022, the Expert Group is expecting above-average GDP adjusted for sporting events to grow by 3.1 %. Employment is set to rise considerably, with unemployment declining to an annual average of 3.0 %.

Economic risks
The most significant uncertainties are those linked to the coronavirus pandemic and the possible responses of economic players and politicians to the situation.

On the one hand, the second wave of the coronavirus could have a less negative impact on the economy than assumed, especially abroad, or the coronavirus vaccines could be administered across the board earlier than expected, making further containment measures unnecessary. A much more rapid economic recovery would then be expected.

On the other hand, the recovery would be interrupted again if further severe waves of the pandemic were to materialise during the forecast period, resulting in dramatic containment measures in Switzerland and abroad. This would further increase the probability of second-round economic effects such as large-scale job cuts and corporate insolvencies. The risks linked to government and company debt would also grow.

The international trade conflict poses further risks to the global economy. A « hard » Brexit would be another blow to the fragile economy. Finally, there is still a risk of more major corrections in the Swiss real estate sector.

Note:
Because of the great uncertainty the SECO completes the economic forecast of the Expert Group with two updated economic scenarios. They are to be found in the economic forecast section of the latest edition of « Konjunkturtendenzen » at www.seco.admin.ch/economic-forecast (in German).


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