Meaningful Economic Recovery and Turnaround on the Labour Market only in 2011

Bern, 15.12.2009 - Economic Outlook and Forecasts of the Federal Government’s Expert Group on Economic Forecasts – Winter 2009*. In a brightened-up global economic environment, the Swiss economy, as well, had been able to overcome the recession in Q3 of 2009. According to the Federal Govern-ment’s Expert Group on Economic Forecasts, the economic recovery will continue next year, however, in the wake of temporarily fading positive impulses from the international economic environment, it will remain moderate (GDP growth of +0.7% in 2010). It will probably not be before 2011 that the economy will gain momentum (GDP growth of +2.0%). Against the background of a sluggish economic recovery, labour market forecasts remain bleak for 2010. A decline in unemployment is not expected before 2011.

International Economic Development
Since mid 2009, a worldwide recovery of economic development following a fierce recession could be observed. This development has mainly been due to the manifold economic support initiatives by governments and is expected to go on for some more time, according to positive early indicators.

Nonetheless, prospects for international economic development for 2010 (and probably beyond) are anything but bright. The impulses which are currently dominating the scene are mainly temporary – in particular, stimulus packages bundled by national governments, but also the reversal of stock cycles – and will inevitably start to fade in the year to come. A sustainable upswing would therefore require a boost in private consumption and investment, which, however, seems questionable for various reasons. Accordingly, expansion of private consumption, namely in the USA (as well as in other countries which in the preceding decade had experienced a debt-driven hype in consumption) could, for years to come, be slowed down by the fact that private households will be anxious to reduce their high indebtedness. Moreover, in the context of weak capacity utilization, a fast and strong recovery of worldwide corporate investment seems hardly likely.

It is for these reasons that the Expert Group expects a cumbersome and lackluster global economy while a backslide into recession is not seen as likely to occur. GDP growth in the USA should remain below 2% and around 1% within the EU, and should slowly pick up mo-mentum in 2011 (USA 2.5%, Euro zone 1.7%). Altogether, this global economic scenario corresponds to a sluggish recovery which has been regularly observed in the past after financial and real-estate crisis.

Economic Forecast for Switzerland
In a brightened-up global economic setting, Switzerland, as well, has been able to overcome the recession after the middle of the year. Following four negative quarters in a row, real GDP in Q3 of 2009 increased slightly for the first time (+0.3% compared to the previous quarter, not annualized). The turnaround achieved in exports in Q3 after a strong one-year downward slide, had a positive impact. In addition, domestic demand, namely private and public consumption as well as building investments, continued to support the economy.

Looking at the entire year 2009, Switzerland’s GDP is expected to be 1.6% below its 2008 level. On the one hand, this would correspond to the strongest annual decline since 1975. On the other hand, it should be noted that the recession in Switzerland was milder than in many other countries. The good shape of the Swiss economy, i.e. absence of major imbalances, such as excessive private or public indebtedness, or real-estate bubbles, had a positive impact on the economic performance during the worldwide recession. Moreover, continued population growth in recent years contributed certainly to the expansion in private consumption and building investments.

Even if the economic turnaround in Switzerland seems to have been accomplished, growth expectations, especially for 2010, are rather moderate because the dynamics in the global economy are expected to remain on a quite low level. For the year 2010, the Expert Group revises its GDP growth forecast to be 0.7% (so far 0.4%). This still corresponds to the scenario of a global economy recovering in small steps only, far away from a sustainable up-swing. The Expert Group does not expect any stronger GDP recovery in Switzerland before 2011 (+2.0%).

After the sharp decline in exports in 2009 (-9.7%), a rather moderate revival is anticipated for the next two years. A recovery in equipment investment among companies will be some more time in the coming since industry capacity utilization has dropped to a long-year low and, accordingly, there is little need for capacity increases for the time being. In the face of bleak labour market and income perspectives, expansion tendencies in private consumption, so far rather vibrant, are expected to slow down in 2010.

Considering a more or less sluggish GDP recovery, next year's labour market will rather likely remain the weak factor in economic development. It is true that in employment, there are some initial signals of the decline coming to a halt. But bearing in mind that many companies are still faced with under-utilized capacities and excessive headcount surplus, there should hardly be any need next year to hire new staff. The unemployment rate (adjusted for seasonal variations) could still increase from currently (November 2009) 4.2% to a maximum level of around 5% by the end of 2010 – which would correspond to about 200,000 registered unemployed people – and then slowly start to come down in the course of 2011. The annual average unemployment rate, both in 2010 and 2011, will probably be around 4.9%.

In Switzerland as well as in many other countries, the phase of negative price developments in consumption which was due to falling oil prices, ended in autumn 2009. For 2010 (+0.8%) and 2011 (+0.7%), the Expert Group expects slightly positive rates of price increases again. However, due to the high level of under-utilization in economic capacity, the risk of inflation is considered to be rather low.

Economic Risks
The potential medium term repercussions of the international financial crisis as well as the timing of the exit strategies of Central banks from quantitative easing represent a major risk for the global economy in the coming years. The scenario of a slow economic recovery in Switzerland which the Expert Group considers to be likely bears comprehensive uncertainties in both directions. If the tendencies of revival, which can at present be seen in various regions worldwide – last year's slump mirror-inverted –, reinforce themselves reciprocally, economic growth in 2010 could present itself more robustly than anticipated (V-shaped recovery), despite all the decelerating factors. On the other hand, there is a considerable negative risk in the economic outlook as far as the still unsolved problems in the international financial system are concerned. One potential risk, for example, is the anticipated decline in liquidity (central banks will have to take action to withdraw money from the interbank system), which could make the existing weaknesses of some individual financial institutions more visible again.

*Four times per year, the expert group of the Federal Government publishes a forecast on economic development in Switzerland. The current forecast from September 2009 is commented in this media release. These “Konjunkturtendenzen” (engl.: ‘economic tendencies’), a quarterly SECO publication, appear in printed form as a supplement of the February, April, July and October editions of the magazine titled "Die Volkswirtschaft" ( They can also be downloaded from the internet as a pdf file (


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