Switzerland facing biggest economic slump since 1975

Many people in Switzerland will be counting their change more carefully. © Keystone / Christian Beutler

In a revised forecast in the wake of the coronavirus pandemic, federal authorities predict GDP will contract by 6.7% in 2020 and recover slowly in 2021.

​​​​​​​

On Thursday, the State Secretariat for Economic Affairs (SECO) announced that it had adjusted 2020 economic forecasts to take into account sporting events affected by the pandemic. The original revised forecast estimated the economy would contract by 1.5%. Unemployment is expected to average 3.9% over the year.

In a press releaseExternal link, SECO warned that this would make it the biggest slump in economic activity since 1975.

This is a more dire prediction than that of the BAK Economics Institute, a Basel-based think tank, which at the end of March predicted a drop in GDP of 2.5% in 2020.

This is attributed to disruptions in global supply chains and the rising number of Covid-19 cases in Switzerland that have necessitated widespread public health containment measures since mid-March.

The forecast expects a modest recovery with the easing of restrictions in the next few months. However, income losses due to high rates of partial and full unemployment as well as the 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”, according to the economic ministry.

Rising government debt in many countries as well as further upheaval in the financial markets and Swiss real estate sector could also exacerbate risks. Switzerland is also heavily affected by the decision to postpone the 2020 Olympic Games and other major sporting events given the large number of sporting associations in the country.

Assuming no further restrictive measures, the Swiss economy should continue its fragile recovery in 2021, with GDP forecasted to grow by 5.2%. Unemployment is set to rise further to 4.1% in 2021, with employment only likely to see a minimal rise.

Social benefit payouts

The economic lockdown measures to contain the coronavirus have led to a spike in requests for social assistance. In the first two weeks after the government declared an “exceptional situation”, the number of welfare applications quadrupled.

This is according to a studyExternal link by the Zurich University of Applied Sciences, which found that those most affected were hourly wage workers, those in part-time jobs and the self-employed.