Switzerland to Report CHF20 Billion of Deficit for 2020

Huge Deficit

                Switzerland’s federal government is expected to report a huge deficit for 2020 in the amount of 20 billion Swiss francs (22.05 billion dollars as per average exchange rate). Of this 18.1 billion francs was spent to cover for COVID-19 pandemic damages. In August budget deficit was projected at 20.9 billion francs, whereas originally a small surplus was foreseen before the pandemic had changed the economic situation. The public sector budget deficit is set to make for 3.7% gross domestic product, and in 2021 it will narrow to 1.2% of GDP.

Economy at Risk, Again

                Meanwhile, index by Credit Suisse plunged by 24 points in October to 2.3, just above the contraction threshold, as Swiss economy is at risk of another slump due to the second wave of coronavirus cases. The first wave of COVID-19 pandemic left Swiss economy less damaged than neighboring countries’ ones, but the Swiss National Bank had to increase its interventions on foreign exchange rate market to stop appreciation on Swiss franc. New wave of cases is set to put another pressure on CHF exchange rate, that is already very strong versus EUR or USD. Another rate cut is not expected by experts, as interest rate are already record low at minus 0.75%. Further measures are supposed to be introduced in the country in order to stop spread of the virus.

Swiss Watchmakers in Bad Situation

                As the economy might get contracted even more than predicted due to another wave of coronavirus cases, some industries are already in bad situation. Among them are Swiss watchmakers, that got hurt more than other branches of industry. Export fell by 28% for period from January to October 2020 with executives of companies foreseeing more troubles apart from pandemic than can hit hard future sales – like Brexit, geopolitical tensions, trade problems between US and China. Before 2020, watch exports from Switzerland had been raising for 20 years in a row, hitting CHF 21 billion from CHF 9 billion. This amount has been significantly reduced this year. According to survey, 67% of 55 executives of Swiss watchmakers has a pessimistic outlook on the situation of Swiss economy as a whole, whereas 85% foresees huge problems for their industry.

CHF Boosted by Lack of Risk Appetite

                As economic and pandemic situation in the country and in Europe is getting worse, the Swiss franc’s already good exchange rate keeps on getting better. In times of troubles, investors buy Swiss franc, as well as the Japanese yens and US dollars, the most liquid currency in the world. Exchange rates of those got stronger versus other major currencies, including euro as investors now are eager to sell euros for other currencies. More and more countries are imposing second lockdown, like Germany and France, as Europe’s death rate from COVID-19 went up 37% last week. The French and German’s governments decision to put strict measures hit the currency market the most, triggering good exchange rate of safe-haven currencies.