Global CIO Office Swiss Economics Swiss economy – some areas flourishing, others struggling Monitor Switzerland | Q2 2021 Swiss Economy Focus Monetary policy Swiss economy in Forecast for hospitality – Opportunistic foreign recovery boom mode what last year taught us currency sales Page 6 Page 11 Page 20 Swiss Economics | Q2 2021 2 Editorial Dear readers The Swiss economy has withstood the coronavirus pandemic with remarkably little damage so far, at least if we take gross domestic product (GDP) as the yardstick: Despite the massive second wave of infections, GDP has rebounded close to its pre-crisis level. Moreover, thanks to the progress of the COVID-19 vaccination campaign and the intensified test- ing regime, the pandemic continues to recede. As a result, the economic outlook for the second half of 2021 looks extremely positive, as we illustrate in our article containing forecasts for the Swiss economy on page 6. On the one hand, the manufacturing sector is recovering on the back of above-average global demand; and it does so even so quickly that there is a scarcity of certain goods. On the other hand, activity in the majority of service industries is bouncing back quasi-au- tomatically after the easing of pandemic containment measures. However, this positive overall development conceals an extremely difficult situation in individual sectors, first and foremost hospitality. In the pandemic-hit year of 2020, catering and tourism rec- orded sales slumps of 40% and 67% respectively. Only isolated segments – such as alternative accommodation and the takeaway business – benefited from the coronavirus crisis. As we illus- trate in our Focus article on page 11, the end of the tunnel is now in sight for catering, even though restrictions on the number of guests allowed at tables and capacity limitations due to social distancing rules are preventing a full sales recovery for the time being. By contrast, there are a number of ways in which the tourism sector could develop going forward. A common thread to all of these is that a swift return to the pre-crisis status quo is rather unlikely. Similarly, the Swiss National Bank (SNB) has taken only a tiny step toward “normalization”. Ac- cording to our estimates in our article on monetary policy on page 20, the SNB has sold a very small amount of foreign currency reserves over the last few months. In our view, however, it has no intention of reducing the money supply or even strengthening the franc with these sales – in- stead it is simply taking advantage of the slight weakening of the franc to test how the market responds to sales of foreign currency. Accordingly, we continue to believe that the SNB would react to any strengthening of the franc with renewed foreign currency purchases, and that the chances of any increase in its key interest rate are remote until at least the end of 2022. We wish you an enjoyable and interesting read. We wish you an enjoyable and interesting read. André Helfenstein Claude Maurer CEO Credit Suisse (Switzerland) Ltd Chief Economist Switzerland Swiss Economics | Q2 2021 3 Contents Page Swiss Economy 6 Swiss economy in recovery boom mode Against a backdrop of the receding pandemic, the Swiss economy is recovering rapidly. We are anticipating gross domestic product (GDP) growth of 3.5% in 2021. The recovery looks set to lose some of its momentum, however, which is why we are anticipating a weakening of GDP growth to 2.0% for 2022. Economy | Monitor 7 Sectors | Monitor 8 Focus 11 Forecast for hospitality – what last year taught us In the pandemic year of 2020, the catering and tourism sectors recorded sales slumps of 40% and 67% respectively. Only isolated segments – such as alternative accommodation and the takeaway business – benefited from the coronavirus crisis. While there is light at the end of the tunnel for catering, there are a number of directions in which the tourism sector could develop. Monetary policy 20 Opportunistic foreign currency sales We estimate that the Swiss National Bank (SNB) has sold small amounts of foreign currency reserves over recent months. We see these sales as “opportunistic” rather than a tightening of monetary policy. Foreign currency purchases remain likely in case of mounting appreciation pressures on the Swiss franc, in our view. Monetary policy I Monitor 21 Real Estate I Monitor 22 Credit Suisse Leading Indicators 23 Forecasts and Indicators 25 Swiss Economics | Q2 2021 4 Swiss Economics | Q2 2021 5 Swiss Economy Swiss economy in recovery boom mode Against a backdrop of the receding pandemic, the Swiss economy is recovering rapidly. We are anticipating gross domestic product (GDP) growth of 3.5% in 2021. The recovery looks set to lose some of its momentum, however, which is why we are anticipating a weakening of GDP growth to 2.0% for 2022. Second wave causes According to the State Secretariat for Economic Affairs (SECO), Swiss economic output recorded less economic a quarter-on-quarter decline in the first quarter of 2021, albeit only a modest one (-0.5%) in view damage of the renewed surge of coronavirus infections. There are many reasons for this relatively positive development. First, manufacturers benefited either directly or indirectly from the early recovery in demand from Asia, and borders remained open for trade. Second, the mobility of the population declined less dramatically than in the spring of 2020, and economic output reacted in a more muted way to the decline in mobility – people were clearly more practiced in dealing with the virus. Third, the restrictions were less severe and childcare was available. Dynamic recovery in With the reopening of broad parts of the economy, the recovery set in more or less automatically second semester of (Fig. 1), especially as the majority of households had once more accrued (additional) surplus sav- 2021 ings in the second wave, most of which is now being spent. In particular, we are expecting con- sumer spending to have normalized by the early fall – with certain exceptions such as the events industry and parts of the hospitality trade. Meanwhile, the recovery boom in manufacturing is con- tinuing. The Purchasing Managers Index (PMI) for manufacturing, which reflects the state of de- mand in the industrial sector, is currently at its highest level since this survey was first conducted back in 1995. Overall, gross domestic product (GDP) can be expected to rise by 3.5% this year, which would more than compensate for the sharp decline recorded in 2020 (-2.6%). Growth momentum However, we are anticipating a waning of growth momentum to 2.0% in 2022. Catch-up effects likely to weaken in are likely to increasingly wear off, particularly as we estimate that some 30% of the savings made 2022 during the two lockdowns are likely to be “rainy-day savings” (which equates to a rise of almost one percentage point in the savings ratio). Meanwhile, demand for goods will weaken somewhat over the next few months if people around the world regain access to other spending possibilities as a result of the reopening of the economy. Indeed, a certain skepticism over the duration of the recovery boom is apparent on the part of companies: Despite capacity being stretched in many cases, manufacturers appear to be reluctant to recruit new staff (Fig. 2). Fig. 1: Recovery kicks in as economy reopens Fig. 2: PMI is at record level – but employment sub-component not Sales index, weekly averages. October 1, 2020 = 100 Growth thresholds = 50 Measures Retailing Catering Entertainment, sport 80 PMI Index Employment sub-component 160 70 140 60 120 100 50 80 40 60 40 30 20 20 0 1995 1999 2003 2007 2011 2015 2019 Oct Nov Dec Jan Feb Mar Apr May Jun Source: Monitoring Consumption Switzerland, Credit Suisse Source: procure.ch, Credit Suisse Swiss Economics | Q2 2021 6 Economy | Monitor Inflation Inflation likely to rise temporarily to 1.0% Inflation in % Inflation in Switzerland will rise over the coming months, in 2,0 Inflation rate Forecast line with global developments. The Swiss rate of inflation 1,5 should amount to some 1.0% by the year-end – which 1,0 would nonetheless be significantly lower than in most other economies. Price rises can be expected above all in leisure 0,5 activities, and in particular in package holidays. The prices of 0,0 hotels, restaurants, and household goods will also probably -0,5 rise. For 2021 as a whole we are expecting an average in- -1,0 flation of 0.5% (previously 0.3%), while for 2022 we are ex- pecting a general price rise of the same magnitude (0.5%). -1,5 -2,0 2010 2012 2014 2016 2018 2020 2022 [email protected] Source: Swiss Federal Statistical Office, Credit Suisse (forecast from Q2 2021) Employment Number of Swiss drawing daily benefits for temporary employment rises Number of registered unemployed / jobseekers; last data point: May 2021 350’000 80’000 In January 2021, unemployment in Switzerland reached its Non-unemployed jobseekers highest level since the financial crisis of 2009. It has since 300’000 Unemployed 70’000 fallen back, which is partly due to seasonal factors. The Jobseekers in temporary positions (right axis) 250’000 60’000 number of jobseekers who are not unemployed – i.e. people who are looking for a new job but not able to start it immedi- 200’000 50’000 ately – has not declined all that much. In particular, the 150’000 40’000 number of jobseekers in temporary positions has been rising 100’000 30’000 every month since the start of the year. This form of work encompasses all activities carried out by recipients of unem- 50’000 20’000 ployment benefit to improve their financial situation, even 0 10’000 though the salary amount is below their daily benefit.