Switzerland

After the crisis year 2020, in which the Swiss economy recorded the strongest GDP decline since 1975 at -3%, 2021 is likely to be a year of economic recovery. However, the situation will deteriorate significantly in the short term before a sustainable recovery starts to unfold. The second wave of the pandemic has already been weighing on the Swiss economy since late 2020. As a result of the extension and tightening of Covid-19 containment measures at the turn of the year, including the closure of stores and restaurants, 2021 is likely to start with a double-dip recession for the Swiss economy. An economic resurrection is not expected until Easter at the earliest.  By then progress on the vaccination front, together with warmer temperatures, should allow for a gradual easing of measures. From the second quarter onward, a strong economic recovery should thus set in, thanks to marked positive base and catch-up effects.  The vaccination of the at-risk population groups is expected to be completed by mid-year, setting the stage for a strong consumption boom in the second half of the year. Swiss exports should also feel growing tailwind, thanks to the increasingly synchronous global economic upswing. The dichotomy in the economy - stable industry vs. battered services including hospitality and retail - should still remain with us for some time. A return to economic normality is only on the cards from 2022 onwards. The Swiss economy should return to its pre-crisis level at the turn of the year 2021/22. However, the crisis will leave its mark beyond the short-term, with unemployment and insolvencies still elevated in 2022. Overall, the Swiss economy is expected to grow by +2.6% in 2021 and +3.2% in 2022.  

When it comes to cushioning the Covid-19-related blow to the economy, fiscal policy has to be in the driving seat. Following its initial response to the economic shock, the Swiss government has been reluctant to notably upgrade its fiscal support measures. At around 35% in 2021-22, the debt burden in relation to GDP remains very low. With plenty of room for maneuver, given solid public finances, a more supportive fiscal stance could act as a springboard for the recovery and help keep a lid on long-term economic scarring. - February 2021.