Switzerland faces recession in 2020 due to pandemic, experts warn

Switzerland has imposed major restrictions on public life in a bid to contain the coronavirus pandemic. Keystone

Switzerland is headed towards a severe recession this year due to the economic fallout of the coronavirus, experts warn. If the pandemic is brought under control, the Swiss economy should rebound strongly in 2021.

The BAK Economics Institute, a Basel-based think tank, says the collapse of private spending will trigger a global recession. For Switzerland, this means reduced service exports due to a drop in demand for tourism and events.

On Monday, the think tank predicted a fall in gross domestic product of 2.5% in 2020. That contrasts with its previous forecast which estimated a growth of 1.3% for this year. In an optimistic scenario where the health crisis is quickly under control, the economy should rebound strongly by 4.3% in 2021.

Reduced economic growth will also likely take a toll on employment. The unemployment rate in Switzerland is expected to rise by 0.8 percentage points to 3.1% in 2020, before declining again to 2.7% in 2021.

Negative scenario

In a separate forecast, specialists from the UBS bank said they expect a GDP drop of 1.3% this year followed by a rebound of 2% in 2021, provided emergency measures are abandoned at the end of April. If the crisis continues beyond then, GDP growth could fall by 3% in 2020, they warned.

In this negative scenario, the unemployment rate would increase and weigh on household spending. A wave of corporate bankruptcies would mean defaults on loans from banks. The latter would reduce the volume of mortgages, which would penalise the construction sector. In this case, an economic rebound would not occur before 2022.