Economic recovery loses momentum, but continues

After a dynamic catching up phase of the global economy in the second and third quarters of 2021, the positive development will clearly decrease towards the end of the year. First, the covid pandemic still keeps the global economy in suspense. New mutations, infections after vaccination and insufficient vaccination coverage in many countries are sources of great uncertainty. It is unclear how the pandemic will be defeated and to what extent governments will restrict economic freedoms. Second, the economic recovery has led to supply problems for many materials and products. High demand cannot be fully met under these conditions. Thirdly, the recovery and the shortages are translated into sharp price increases: energy, raw materials, foodstuffs, but also processed industrial products have become more expensive. These three factors tend to hinder the economic recovery. In addition, rising producer prices in the United States and Europe are already being passed on and weighed down on consumer prices.

The tourism sector expects a serious downturn

During these difficult pandemic quarters, the Swiss economy performed very well internationally. However, Swiss companies face major challenges with the three factors of an uncertain course of the pandemic, supply difficulties and price increases. It is clear that it is the tourism sector that is likely to suffer the biggest setback: travel restrictions, quarantine rules and insecurity will ensure that foreign customers will be largely absent. However, Swiss customers will provide some stability. The strong recovery of aviation is under threat. The same goes for hospitality, clubs or transport that expect a difficult winter due to the pandemic – due to decisions by the authorities or changes in behavior among the population.

That said, we should not expect another collapse in the economy. High value added industries are supporting growth: the insurance, IT, pharmaceutical and medical device industries and management consultancy are still stable and showing above-average growth. The forecasts for 2022 are also positive. Several industries that have suffered significant losses due to the pandemic in 2020 expect, given the developments of the current year, continued growth or even sharp increase before 2022. This is especially the case for the machinery, electrical appliances and metal industries, wholesale, textiles – and watch industry. The Swiss electricity sector continues to recover.

Sectors such as the food industry, banks or retail expect a moderate, but nevertheless positive development in the coming year. This also applies to the construction sector, although growth should be slightly less dynamic than in 2021, a very prosperous year. The environment is still difficult for the telecommunications, advertising and translation sectors.

Slight increase in inflation

Despite the current major challenges, Switzerland’s GDP should generally continue to develop positively. After a year of strong recovery in 2021, with GDP growth of 3.8%, 2022 will become less dynamic and growth will decline to 2.5%.

With the appreciation of the franc, price increases abroad are passed on to a lesser extent to the Swiss consumer. Inflation in Switzerland is relatively low and a sharp rise in inflation is not expected in 2022. economysuisse expects inflation to rise slightly to around 1.2% as an annual average. It would therefore remain within the range set by the Swiss National Bank.

Economic risks are significant

These economic projections are based on the assumption that the epidemiological situation during the winter will be demanding, but that restrictions on economic freedoms will remain moderate. However, the evolution of the pandemic over the past two years has brought several surprises. Short-term economic setbacks are therefore also possible.

The latest economysuisse research shows that the main economic risks are those that weigh on current growth. Two in five respondents see the development of the pandemic as the main economic risk. Next are the risks inherent in supply problems and raw material shortages (see table below). Inflation is also often mentioned, partly in view of a possible tightening of monetary policy in the United States. With regard to Switzerland, the very high valuation of real estate should be noted. A price correction can have painful economic effects. Due to the shortage of skilled labor, currency risks, bilateral relations with the EU and trade disputes have now faded into the background.

The main economic risks

Source: economysuisse, n=131

Forecasts on the evolution of national accounts

table 2

Price and Employment Forecasts

table 3

Exogenous assumptions*

Table 5

* Values ​​based on economic forecasts

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