Switzerland: Economy loses steam in Q4 but still records growth
GDP growth moderated to 0.3% on a seasonally-adjusted quarter-on-quarter basis in the final quarter of 2020, from 7.6% in the third quarter. The loss of momentum was driven by tightening restrictions at home and abroad during the period, although the economy fared much better than during the spring lockdown, due to better-adapted firms and consumers, and because measures in Q4 were generally less stringent. On an annual basis, economic activity declined 1.6% in Q4, down from the previous quarter’s 1.4% fall. Looking at 2020 as a whole, GDP dropped 2.9%—a much milder decline than most European peers.
Household spending fell 1.5% in the fourth quarter, which contrasted the third quarter’s 12.2% expansion, due to limitations on the hospitality and leisure sectors. Fixed investment growth waned to 1.2% in Q4, compared to 7.9% recorded in the prior quarter. However, government consumption grew at the fastest pace in decades, expanding 2.3% (Q3: -0.1% s.a. qoq).
Exports of goods and services worsened, contracting 2.5% in Q4 (Q3: +2.6% s.a. qoq). The downturn was driven by lower goods exports. In addition, imports of goods and services deteriorated, falling 5.4% in Q4 (Q3: +5.7% s.a. qoq) amid softer domestic demand.
Looking ahead, the economy is likely to contract in Q1 this year due to the tougher restrictions in force since January, which include the closure of non-essential shops. However, recovery should ensue from Q2 onwards.
Charlotte de Montpellier, economist at ING, commented on Switzerland’s outlook:
“We expect GDP to decline in 1Q 2021, mainly due to a sharp fall in consumption and tourism. Nevertheless, the decrease in GDP should be much smaller than those recorded during the first wave of the coronavirus in 1Q and 2Q 2020 (-1.9% and -7.2% QoQ), mainly due to the manufacturing sector and to the adaptability to health regulations shown by companies that are not obliged to close down. From the second quarter onwards, thanks to the progress of the vaccination campaign and the gradual lifting of restrictions, GDP growth should resume. We expect growth of around 3% for the whole of 2021, which implies a return to the level of activity that prevailed before the crisis at the end of 2021. This is again much better than most European countries, which would only reach their pre-crisis levels by the end of 2022 or even 2023.”