The Swiss economy is asserting itself despite the war in Ukraine

Given the great political uncertainty surrounding the war in Ukraine, the KOF presents two scenarios in its spring forecast.

According to KOF’s economic forecasts, the Swiss economy is expected to grow by almost 3% this year, but only in a favorable scenario. If the Ukrainian crisis were to spread and lead, among other things, to a complete cessation of all Russian energy and raw materials exports, including to the EU, a withdrawal of Russian crude oil trade from Switzerland and a sharp appreciation of the franc, only GDP growth of 1% is expected to continue in 2022.

The global economy in crisis – The post-Covid recovery affected by the war in Ukraine

With the invasion of Ukraine by Russian troops on February 24 and the resulting economic sanctions against Russia, the world economy is once again entering a crisis. The recovery of the economy, after the relaxation or total lifting of measures taken in many places to contain the spread of the coronavirus, is therefore currently being burdened by new negative shocks. In the short term, the economy is feeling the consequences of the war due to the sharp rise in the prices of energy and raw materials. This development further reinforces the price increases that have been observed in many places before. Trade with Russia is virtually at a standstill in all areas except energy. Since many companies active in the international trade in commodities are located in Switzerland, a broader embargo than the one currently in force could lead to a significant loss of added value. Finally, uncertainty about the risk of another escalation, or even military attacks on other states in the region, could negatively impact consumption and investment. Even if a ceasefire between Ukraine and Russia was to come quite soon, this war has already had a lasting effect on the geopolitical situation and thus on the global economy.

Favorable scenario: GDP growth of 2.9 percent

Without the Russian invasion of Ukraine (a counterfactual scenario, see box below), sport-adjusted gross domestic product (GDP) growth this year would likely have been close to 3.2% (3.3% including sporting events ). Compared to this counterfactual (fictitious) growth rate, which would be largely fueled by the recovery after the lifting of the pandemic measures, KOF now estimates GDP growth at 2.9% (3.0% including sports events) in the favorable scenario. Under this scenario, the economic impact of the war on the global economy in the second quarter of 2022 will remain largely contained, even though many sanctions against Russia will remain in place for longer. But as neither Russia nor Ukraine are major trading partners of Switzerland, the damage caused by a trade interruption in the favorable scenario is limited, although some companies will be severely affected. In 2023, GDP adjusted for sports events is expected to increase by 2.3% (2.0% including sports events). This percentage is certainly significantly lower than that of 2022, but it remains above the potential growth rate. To the extent that the catch-up effects gradually diminish after the corona crisis, the dynamics are gradually normalizing.

Negative scenario: 1% increase in GDP

With the negative scenario, the KOF assumes a complete cessation of all Russian energy and raw materials exports, including to the EU. Energy prices would soar again and some European countries would face increasing production restrictions. Foreign demand for Swiss products would decline. It is further believed that trading of Russian commodities in Switzerland would be halted. Moreover, in this negative scenario, the KOF assumes that the Swiss franc would rise rapidly and strongly. Under these assumptions, GDP growth adjusted for sports events would be only 1% in 2022 (1.1% including sports events). This would be about 2 percentage points less than in the favorable scenario. In 2023, GDP would increase by 0.8% (0.5% including sporting events), still about 1.5 percentage points less than in the favorable scenario.

With the negative scenario, unemployment is likely to rise

The difference between the negative and the favorable scenarios is greatest in the second quarter of 2022: while the favorable scenario foresees a moderate but positive growth rate, the negative scenario decreases this to about -6% year-on-year. However, there would be no recession in the technical sense (defined as two consecutive negative quarters), as GDP growth turns slightly positive again in the third quarter thanks to a small rebound effect. However, the capacity of the economy as a whole remained seriously underutilized in the third quarter. In this negative scenario, the labor market would also come under pressure. The hard-hit industries, such as certain parts of the manufacturing industry, would see job losses lasting several quarters.

Inflation remains subdued in Switzerland

The current rise in inflation at home and abroad has undergone a qualitative change with the Ukrainian crisis. As a result of the war, inflation is expected to rise more sharply and fall more slowly than expected. Early signs indicate that long-term inflation expectations in Switzerland may have already risen. Unlike other parts of Europe and the United States, where inflation is already moving towards double digits, Switzerland is spared for the time being: with the favorable scenario, Swiss consumer prices will increase by 1.6% in 2022, but the increase will already fall to 0 .8% in 2023. With the negative scenario, inflation of 2.8% (2022) and 1.2% (2023) temporarily exceeds the zone that the SNB considers to be the stability of the price level, namely to 2%.

Dangerous variants of the coronavirus remain predictive risk

For all these scenarios, the KOF assumes that there will be no reintroduction of contact restrictions. Given the endemic scenario chosen for Switzerland, cases of COVID-19 will become part of everyday life and no longer really interfere with the activities of healthy people. But since the pandemic is far from over, with the risk of the appearance of new potentially dangerous variants of the virus, and it is not yet known how long the current immunity of the Swiss population to the variants currently circulating, the endemic scenario chosen may turn out to be too optimistic in retrospect.


Given the great political uncertainty surrounding the war in Ukraine, the KOF presents two scenarios in its spring forecast. In the favorable scenario, the KOF assumes an imminent end of military violence and rather negative effects on the economy in the short term. He opposes it with a negative scenario, which foresees a new escalation and a longer duration of the violence, with stricter Western sanctions against Russia and in response Russian sanctions against the West. With the negative scenario, all Russian energy and raw material exports to the European Union (EU) will be halted, leading to severe shortages of energy and semi-finished products, associated production stoppages and rationing. The European economy would then end up in recession and the Swiss economy would also experience significant production cuts in the second quarter of this year. The counterfactual is purely fictional and therefore not a scenario in itself. It calculates how Swiss GDP would have evolved without the war in Ukraine.

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