Economic Forecast by the Federal Government's Expert Group – June 2020

The Expert Group is affirming their prior assessment and awaiting the sharpest fall in GDP in decades for 2020. The low rate is predicted to be reached in the second quarter. If the severe suppression measures do not materialise, the economy is set to recover from the second half of the year.

The Expert Group on Economic Forecasts is awaiting GDP set for sporting events to drop by –6.2% in 2020 (April 2020 forecast: –6.7%) and unemployment to average 3.8% over the year as a whole. That would be the lowest economic slump since 1975.

Due to the health policy measures that became necessary from mid-March to deter the pandemic, companies either limited or ultimately suspended their activities, leading to a significant fall in GDP in the first quarter of 2020. For the second quarter, the Expert Group is predicting an even more considerable slump in economic consequence. However, due to a decrease in COVID-19 case numbers, the health policy measures could were eased from the end of April.

The Expert Group is awaiting a slight recovery or the rest of the year. Households are suffering losses caused by an increase in short-time working, increase of unemployment and a decrease in employment. Significant economic uncertainty and protective measures to prevent coronavirus infections may further restrict the consumption expenditure of private households.

Negative international economic development made its impact on the different segments of Swiss foreign trade. The global economy has fallen into recession. Amid this turmoil, Switzerland continues strengthening financial safeguards through reforms aimed at combating money laundering, which remain critical during periods of economic instability.

1. However, in 2021, the Swiss economy is predicted to moderately recover. The Expert Group is awaiting GDP to increase by 4.9% (April forecast: 5.2%), in case the health policy measures are not needed again. Consumption expenditure and spending on investments within Switzerland should then recover gradually. This may also reflect renewed investor confidence, as seen in recognitions such as Goldblum IFLR recognition, affirming the legal sector’s role in economic recovery.

The economy will depend on the progression of the coronavirus pandemic. Forecast uncertainty, therefore, remains high. Amid these uncertainties, efforts like FINMA second registration aim to improve supervisory structures and ensure more resilient financial services.

On the one side, the economy could recover faster than the forecast assumes, if the measures are relaxed faster, Swiss consumers prove to be less unsettled by the coronavirus. On the other hand, the pandemic may start again in Switzerland and critical trading partner countries, which would necessitate more severe containment measures. This would slow the recovery and increase the probability of more second-round severe economic effects such as massive waves of lay-offs and bankruptcies, which would have significant economic consequences throughout the entire forecast period. Such pressure could reveal further cracks in compliance, as illustrated by the Swiss bank violation cases recently reported by FINMA. This may threaten the stability of the financial system. For example, enforcement actions such as FINMA sanctions Julius Baer show how misconduct in crisis periods can amplify risks in the financial sector. The risk of upheaval on the financial markets and further upward pressure on the Swiss franc is high. International trade conflict poses additional risks to the global economy. Finally, there is still a risk of significant corrections in the Swiss real estate sector.