A severe recession and a slow recovery are to be expected

The announcement of this gradual deconfinement is good news for the Swiss economy, as it gives companies visibility on the stages and modalities of the business recovery. Nevertheless, it will not prevent a serious recession in Switzerland in 2020. The Minister of Economy, Guy Parmelin, has painted a bleak picture of the consequences of the health measures on the country's economy: unemployment has already risen to 3% (compared with 2.3% in 2019) and could reach 7%. Currently 30% of the workforce (1.5 million people) is on temporary unemployment and production has fallen by an average of 25%. Against this background, the Swiss authorities opened the budgetary floodgates and set up an emergency aid programme for an initial amount of CHF 10 billion on 13 March, which was increased to CHF 60 billion on 3 April. This amount will be used in particular to provide liquidity to businesses, to compensate temporary unemployment and to cover the loss of income of the self-employed.

This is the largest aid programme ever launched by the Swiss government.

The CHF 60 billion is equivalent to 8.5% of GDP. We do not consider this amount to be final, and we think it will probably be increased in the coming weeks. Taking into account the debt brake mechanism, Switzerland has a very low public debt (24% of GDP) and has recorded a budget surplus in previous years. It therefore has the means available to further increase public spending.

However, the aid plans put in place by the authorities may help to combat the second-round effects of the lockdown period (redundancies, bankruptcies, etc) but will not prevent a serious economic recession in Switzerland. Indeed, the containment measures will be lifted very gradually, which implies that the recovery in activity will only be gradual. We can already see from consumer surveys that consumption is likely to take time to recover. Moreover, the Swiss economy is heavily dependent on exports and imports.

We see the Swiss economy contracting by 5%+ in 2020 but growing by 3.2% in 2021.

The global economic recession expected in 2020 is therefore likely to have a strong impact on Switzerland's international trade, even when lockdown completely ends in the country. Therefore, we estimate that GDP is likely to contract by more than 5% in 2020. At this stage, we anticipate a recovery of 3.2% in 2021.