Swiss economy tipped for stronger rebound from pandemic

Masked shoppers queue up — The re-opening of shops and offices has given the Swiss economy a boost. Keystone / Laurent Gillieron

Switzerland’s economy is recovering from the coronavirus pandemic at a faster rate than previously anticipated.

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The State Secretariat for Economic Affairs (Seco) painted a brighter picture for economic growth (gross domestic product or GDP) and employment prospects than it had forecast in March.

The predictions have been adjusted for the impact of major sporting events like the ongoing European football championships and the impending Tokyo Olympics. Seco has significantly raised its 2021 sport adjusted GDP growth up to 3.6% from 3% in March.

Seco now believes that the economy will “climb well above the pre-crisis level in the second half of 2021,” it said on TuesdayExternal link. “As a result, companies are predicted to increase their investments and expand their workforces. Short-time working is likely to be reduced gradually and unemployment should fall further.”

The expected unemployment rate has now been tipped to reach 3.1% this year, compared to the 3.3% forecast in March. The jobless rate is also expected to fall further next year to 2.8% but Seco’s sport adjusted GDP forecast for 2022 remains unchanged at +3.3%.

Last year, the Swiss economy suffered its worst annual slump since the 1975 oil crisis. Economic growth in the 2020 pandemic year fell by -2.9%.

Positive echoes

Seco’s increased optimism for the future was echoed by independent research group BAK Economics, which last week raised its GDP forecast from 3.4% to 3.9%.

But Seco sounded a note of caution with outbreaks of variant Covid strains still causing problems in some parts of the world. The pandemic is still not beaten and could yet re-emerge to confound the predictions of economists.

Switzerland’s issues with the European Union and proposed changes to international corporate tax rules could also throw a spanner in the works, says Seco.

As important as the rate of recovery is the balance of future growth. Inflation would be a concern if consumer demand outstrips production capacities. A resulting rise in interest rates could adversely impact mortgage borrowers and make it more onerous for companies to pay off debt.

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Seco is also keeping a close eye on the number of company insolvencies amid fears that many firms are currently being kept alive through emergency government loans. Once that lifeline expires, the rate of bankruptcies may well increase.