War in Ukraine – First assessment of the economic implications in Switzerland

Putin’s actions could reduce Swiss economic growth by about half a percentage point in 2022 and 2023.

The invasion of Ukraine also affects the economic outlook: for the current year and in 2023, Switzerland’s gross domestic product growth could be reduced by about 0.5 percentage points. This is mainly due to indirect economic effects, such as a loss of purchasing power due to inflation, which is expected to be higher than previous estimates.

Russia’s attack on Ukraine is a historic event that undoubtedly allows us to discuss another world between before and after February 24, 2022. Given the political and humanitarian implications of the conflict, it seems almost inappropriate to comment on the economic effects of this war against Switzerland. However, an initial assessment in this area shows that the Russian invasion in 2022 could cost Switzerland about half a percentage point of gross domestic product growth. Another speed loss of a similar magnitude is also expected for 2023. This means that Switzerland will not experience a recession, but the recovery from the crisis caused by COVID-19 will slow down considerably. Instead of the 3% previously forecast, growth is expected to be around 2.5% in 2022 and around 1.5% in 2023, which is significantly lower than potential growth.

The main reasons for this slowdown in economic growth are indirect in nature. However, some direct effects must also be taken into account, mainly because of the economic sanctions imposed on Russia, which excludes it from the world trade and financial system in many areas.

Swiss inflation, already clearly positive again, will remain high on the back of rising energy and food prices. Nevertheless, BAK Economics expects Swiss inflation to remain below 2% on average in 2022, but approach this limit. In addition, record energy and fuel prices are an important factor influencing consumer confidence. In addition, the price falls on the financial markets and the general uncertainty about the future course of the conflict have an indirect dampening effect.

On the other hand, the sanctions imposed on Russia will directly eliminate some business opportunities. However, it should be noted that Swiss goods exports to Russia represent only slightly more than 1% of the total (Ukraine share: 0.2%) and that Russia and Ukraine each account for about 0.1% of imports. Trade relations with these two countries are therefore not decisive for the economic development of Switzerland. However, in some cases significant losses can be expected, for example in the areas of asset management, commodity trading and tourism.

  • Almost a third of Russia’s private wealth is located in Switzerland.
  • According to the economic report on Russia published by the Swiss Embassy, ​​about 80% of international trade in Russian commodities is carried out by Swiss financial services companies.
  • In terms of overnight stays, the share of Russian citizens in Swiss accommodation in 2019 was about 0.9%. However, these hosts spend only about 25% more than the median spend of all tourists.

Besides the evaluation of the immediate economic effects, it is already possible to formulate the first reflections on the changes in the medium and long term. The impending upheavals in the political landscape are likely to have far-reaching economic consequences as well. The reception and integration of (perhaps) millions of Ukrainian refugees, the sharp increase in defense spending or the restructuring of energy supply facilities and the extraction and processing of raw materials are associated with high costs, which reduce the growth potential and will eventually be financed, at least for the time being , due to a further rise in government debt. Changes in the direction of innovation policies and global cooperation between countries are also likely. While many aspects remain to be clarified, the economic and social changes brought about by the Russian invasion are likely to have a marked negative impact on the long-term level of the economy and prosperity.

The evolution of the conflict is very uncertain

At present, the development of the conflict is still very uncertain and subject to sudden changes, not only with regard to the course of the war, but also with regard to economic countermeasures and their consequences.

We will therefore continuously update our assessment and in particular quantify the economic impacts more precisely as of March 10, 2022 as part of our monthly publication of Swiss economic forecasts.

Leave a Comment