Swiss GDP set for worst fall in decades

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A team of economic experts working for the Swiss government forecasts a 6.7% fall in GDP and unemployment to rise to 3.9% in Switzerland in 2020.

If these predictions prove right, it will be the biggest slump in economic activity since 1975.

The Covid-19 outbreak has forced many companies in hospitality, retail, culture and leisure to restrict or completely suspend their business activities, triggering an abrupt fall in output and private consumer spending, according to a press release.

The team expects a modest recovery in the second half of 2020. However, losses of income, rising unemployment and considerable economic uncertainty will limit the amount of lost ground that private consumption will be able to make up in the second half of the year. Overall, private consumption could fall more sharply than GDP in 2020, it said.

A sluggish recovery in the global economy is expected to hit the segments of Swiss foreign trade that are sensitive to the economic cycle particularly hard.

Assuming restrictions can be eased further and new waves of infection spread don’t require similarly restrictive measures, the Swiss economy should continue its fragile recovery and grow 5.2% in 2021. However, the forecast does not expect Swiss GDP to reach the level of 2019 in 2021. Unemployment is forecast to rise to 4.1% in 2021.

On the one hand, the economy could recover faster if Swiss consumers prove to be less unsettled or other countries make up lost ground more strongly than anticipated. On the other hand, the pandemic and associated containment measures could last longer than predicted, which would slow the recovery significantly.

In addition, there could also be more severe second-round effects such as lay-offs and bankruptcies. The debt ratio of companies is rising sharply.

There is also a significantly greater risk of upheaval in global financial markets, a risk of further upward pressure on the Swiss franc, and a rising risk of a correction in the Swiss real estate sector.

Forecast uncertainty is extraordinarily high. Very little hard data is available for March and April, data which underpins these forecasts.

About Investec

Investec is a distinctive Specialist Bank and Asset Manager. We provide a diverse range of financial products and services to a niche client base in three principal markets, the United Kingdom, South Africa and Australia, as well as certain other geographies. Investec’s strategic goals are motivated by the desire to develop an efficient and integrated business on an international scale through the active pursuit of clearly established core competencies in the group’s principal business areas.

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