Switzerland registers historic economic slump due to Covid-19

The increase in online shopping hasn't made up for the shortfall in consumer spending during the Covid-19 pandemic. Keystone / Jean-christophe Bott

From April to June, Switzerland experienced the sharpest fall in economic activity since quarterly figures were first recorded in 1980. It still fared better than many other countries in the face of the Covid-19 pandemic.

The latest statisticsExternal link released by the State Secretariat for Economic Affairs (SECO) on Thursday revealed that Gross Domestic Product fell by 8.2% between April and June 2020 compared to the previous quarter. In the first quarter, GDP fell by 2.5%.

Compared to the last quarter of 2019, before the pandemic, GDP in the first half of 2020 fell by a cumulative 10.5%.

The slump isn’t entirely surprising, according to economic analysts, some of whom had forecasted an even steeper decline for the second quarter. SECO also said that the structure of the domestic economy contributed to a “relatively mild” decline by international standards.

An even greater slump was prevented partly thanks to the importance of the pharmaceutical sector, which increased sales last quarter. In contrast, industrial sectors including machinery, watches, and metals, which are more sensitive to economic cycles, suffered setbacks with a 9% drop in exports.

The service sector, particularly the hotel and restaurant industry, was hit the hardest by measures to contain Covid-19. However, SECO writes, results here are also better than for neighbouring countries that rely more heavily on tourism.

The closure of stores and restaurants over several weeks during the partial lockdown in spring caused consumer spending to drop by 8.6% last quarter. Alternative channels, such as online shopping, were only partially able to compensate for the shortfall.

Although a recovery is expected in 2021, with growth rates of between 3-6%, SECO doesn’t expect the country to return to the economic productivity levels recorded at the end of 2019.

On Thursday, the Swiss government also announced it was budgeting a deficit of CHF1.1 billion for 2021, which is better than forecasts. There are a few reasons for this including the ample reserves at the start of budget planning process, the additional profit distribution by the Swiss National Bank and the postponement of tax revenues to 2021 in the amount of CHF 2.4 billion.