Investment in Switzerland

Switzerland - Investment

GDP records largest contraction on record in Q1

GDP contracted 2.6% on a seasonally-adjusted quarter-on-quarter basis in the first quarter, contrasting the 0.3% expansion recorded in the fourth quarter and marking the sharpest contraction since the series began in 1980. On an annual basis, the economy shrank 1.4% in Q1, swinging from Q4’s 1.6% increase and marking the worst reading since Q3 2009.

The domestic side of the economy led the quarterly downturn, as pandemic-induced lockdown measures enacted in March impaired activity. Household spending deteriorated markedly, contracting 3.5% in Q1 (Q4 2019: +0.3% s.a. qoq) as households restrained spending on travel, leisure and food services in the wake of the coronavirus outbreak. Moreover, fixed investment dropped at the sharpest pace since Q1 2009, contracting 2.7% (Q4: +2.0% s.a. qoq), while government consumption growth remained unchanged at 0.7% for the third quarter in Q1.

In the external sector, exports of goods and services fell 2.0% in the first quarter, which was softer than the fourth quarter's 3.8% contraction. In addition, imports of goods and services slid at a lower rate of 1.6% in Q1 (Q4: -6.6% s.a. qoq).

Turning to this rest of this year, available data points to a sharper downturn in the second quarter: The KOF barometer hit a fresh low in May amid tumbling consumer sentiment and as PMIs for April–May indicated heavy contractions in manufacturing and services activity. However, easing containment measures from mid-May should provide some respite, particularly for the ailing tourism industry.

Commenting on the economic outlook, Charlotte de Montpellier, economist at ING, stated:

“Lockdown measures began easing in Switzerland towards the end of April, and more strongly from 11 May, which implies the Swiss economy is likely to contract much more in the second quarter than in the first quarter of 2020. In terms of economic figures, the worst is therefore still to come. [However,] some damage to the economy has been avoided thanks to the emergency plan by the authorities - support for certain sectors, guarantees, compensation for temporary unemployment... all in all, almost 9.3% of Swiss GDP. Nevertheless, the recovery will be slow.”

In April, the State Secretariat for Economic Affairs (SECO) revised its GDP projections and now sees GDP contracting 6.7% in 2020 and expanding 5.6% in 2021. FocusEconomics Consensus Forecast panelists are slightly less pessimistic for 2020, projecting a contraction of 6.1%, which is down 0.9 percentage points from last month’s forecast. In 2021, the panel sees growth at 5.1%.