Outlook for Swiss GDP for 2020 Revised Up

Upgraded Forecast

                Previous predictions were very gloom, foreseeing even the biggest decline in economy since 70’s. Now KOF Swiss Economic Institute is revising its forecast. Conditions are still tough, with as much as 14% of 4,500 companies surveyed believing their survival is at stake now and is in serious risk, but data shows firms are slowly improving. Additionally, Swiss labour market is looking more optimistic. Economists believe situation will look better than previously expected, even though high exchange rate of CHF is hurting export and economy as many investors decide to buy Swiss francs in times of economic turmoil. But the diversified Swiss economy relying not only on export, but also pharmaceuticals and financial services, looks like not that much hurt by the pandemic of COVID-19 – at least less than its European counterparts.

Base Scenario Vs. Pessimistic One

                This is why KOF decided to revise its forecast for gross domestic product of Switzerland for this year and another. In base scenario, that covers situation when there is not observed another surge in infections of coronavirus in Switzerland and no need to come back to harsh restrictions and lockdown, sees a decline of 4.9% in GDP for 2020, a bit lower than the one issued in June. However, still the level from the end of 2019, before the pandemic, is not expected to be reached, even with recovery in 2021. If there is a second wave of infections and some parts of economy are shut down again, the pessimistic outlooks seen GDP contracting by 6% this year. It can look like a harsh decline, but one should remember, that it is still half of the value by which International Monetary Fund  predicts French, Italian and Spanish GDP will shrink this year.

Billions Dollars Gained in Free Trade Deals

                In other news, data published recently by federal government suggest that Switzerland is gaining billions of dollars from free trade agreements, as its economy is highly based on trade. Especially the free trade deal with the European Union proves to be very beneficial, as analysis made by the State Secretariat for Economic Affairs shows. Consumers and importers saved as much as 2.5 billion francs (around 2.7 billion dollars per average exchange rate CHF/USD) in tariffs in 2018. “Thanks to free trade agreements, Swiss companies were able to improve their competitiveness in domestic and foreign markets,” says authors of the report.

Other Swiss Partners

                Apart from free trade deal with the EU and the European Free Trade Association convention, Switzerland is trading without tariffs with other entities – it has 30 free trade agreements and 40 partners globally. The Swiss government has strategy to erase tariffs on import of industrial goods, which would affect cars, shoes, textiles, bicycles sector by allowing companies to have lower input costs and better profitability. The plan needs approval by parliament, should it happen, macroeconomic effects will include saving around 860 million francs.