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Even agile, the Swiss economy is badly taken

The crisis, she knows. In its recent history, the Swiss economy has survived three times. Faced with the great global recession of 2008, suddenly deprived of demand, Swiss companies stood firm – the intervention of central banks notably restored the availability of credit for the real economy, contributing to the revival of investments. The two successive shocks of the franc, in 2011 and in 2015, which this time did not affect demand, but their margins, pushed them in particular to lower their costs by reducing their workforce and to diversify their markets.

Our series on the resilience of the Swiss economy:

“The Swiss economy has the advantage of benefiting from a dense network of entrepreneurs strongly involved in business. Either because they are in charge of their own business, or because they run a company that remains mainly in the hands of the founding family, “observes Marc Possa, an investor specializing in Swiss quotations.

Demand, but no production

This time, the shock differs from the previous ones in its magnitude. Last Thursday, Seco issued two forecasts, according to two scenarios: in 2020, a fall in GDP of -7% is envisaged. It could even reach -10%. But the challenge is also distinguished by its completely new nature. “The demand is there, but it just can’t be met,” says Claude Maurer, manager of economic analysis at Credit Suisse. This is due to closings imposed by governments. In other words, households and businesses would have the capacity to consume, unlike the recession of 2009, but technically cannot. And no one is able to predict the resumption of activities.

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This translates into a sharp drop in production and orders in the industry, according to the PMI index published in early April, which reflects the sentiment of purchasing managers in the sector: the declines are 14.6 and 12 respectively, 8 points, at 34.5 and 32.8 points, while the growth threshold is 50 points. This index, calculated by Credit Suisse and Procure.ch, also shows that businesses that continue to operate encounter difficulties in obtaining supplies – the delivery times index jumped by more than 20 points to 76.1 points, which in normal times would indicate an increase in production, but in this case actually shows the weakness of the available supply, specifies Claude Maurer.

Activity at the lowest level also on the services side (22.4 points), a sector which accounts for three-quarters of jobs in Switzerland, including in particular catering, tourism and events.

Maintaining the spending capacity of consumers remains a sine qua non condition for a rapid recovery

Claude Maurer, Head of Economic Analysis at Credit Suisse

Little room for maneuver

In this context, will the Swiss economy once again be able to count on its historic solidity and rebound? She who already showed some signs of weakness before the health crisis, due to the slowdown linked to the trade war between Washington and Beijing. In particular the machinery industry (MEM), of which 80% of sales are made abroad. “Almost a third of companies in the sector had insufficient profitability, either negative or with an operating margin of less than 5%,” points out Hans Hess, president of the umbrella organization Swissmem.

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He also noted the low level of reserves for many of them. A problem that extends to other sectors: “Discouraged by the negative rates applied to savings, some companies have built up little cash,” notes Marc Possa.

The rebound will therefore depend on the duration of the restrictions and on state aid, observers agree. “Companies may be solvent, flexible, they are today unable to produce and therefore generate income,” said Jean-Pierre Danthine, former number two of the Swiss National Bank, today at the head of the E4S Competence Center (EPFL, Unil and IMD). “Their fixed costs are only partially offset by partial unemployment. And if the bridging loans guaranteed by the Confederation constitute a salutary liquidity contribution in the immediate future, they generate long-term debt “, notes his colleague Dominic Rohner, who pleads for subsidization, defined on a case-by-case basis.

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Aid that must reach them quickly, to avoid bankruptcies and thus preserve jobs: “Preserving the spending capacity of consumers remains a sine qua non condition for a rapid recovery”, underlines Claude Maurer. Especially as tensions on the labor market are materializing, with 26,000 new unemployed registered since mid-March, according to a score made by Seco on April 2.

Suspended by the fate of its neighbors

There remains a key factor, over which Switzerland has little control: “As a small open economy, it is highly dependent on its external markets,” recalls Jean-Pierre Danthine. Consequently, its solidity will depend very much on the ability of its main outlets – Europe, the United States and Asia – to keep afloat.

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