Economy: The risk of recession grows

The coronavirus outbreak has brought the growing optimism at the start of the year to an abrupt halt. The latest news means it seems increasingly likely that there will not just be a short-term economic slump, but instead a global recession.

  • The Swiss economy grew by a solid 0.3 percent in the final quarter of last year. It achieved growth of 0.9 percent for the full year 2019. It is difficult to make forecasts for the current year due to the speed of developments concerning the coronavirus outbreak. A major slump nevertheless seems almost unavoidable. Global weakness is now putting severe pressure on the Swiss economy. Far-reaching measures to curb the virus within Switzerland have now also brought parts of the domestic economy to a standstill. Supply chains have also been broken, consumers are anxious and tourists are staying away. While the Swiss National Bank (SNB) is primarily focusing on currency market interventions, the Federal Council has promised the economy support worth 10 billion Swiss francs so far.

    Growth, sentiment and trend

    In percent

    The graphic shows the actual annual growth in Swiss gross domestic product (GDP) since 1995, its long-term trend and a leading economic climate indicator. The leading indicators suggest that growth rates will dip slightly below the long-term trend in the near future. However, in view of the coronavirus, the indicator is now too optimistic.
    Source: Refinitiv, PostFinance
  • Although the US growth rate in 2019 (2.3 percent) failed to hit the Trump administration’s target of 3 percent, the US economy remained robust up until recently. Thanks to its large domestic market, US industry is relatively immune to a slump in global demand compared to many other countries. However, the concern is that the coronavirus outbreak will also have a huge impact on the US. The measures already taken will significantly restrict the domestic market. Greater anxiety amongst consumers is also anticipated. The US central bank has already cut its key rate to 0.00–0.25 percent at two extraordinary meetings to boost growth. It has also carried out bond purchases totalling 700 billion US dollars and undertaken massive interventions on the money market to ease the tight liquidity situation.

    Growth, sentiment and trend

    In percent

    The graphic shows the growth in real US GDP, its long-term trend and a leading economic climate indicator since the mid-1990s. The leading economic climate indicator points to above-average quarterly growth for the coming quarter. However, in view of the coronavirus, the indicator is now too optimistic.
    Source: Refinitiv, PostFinance
  • Europe has become the epicentre of the coronavirus crisis in recent days. Here the virus is having an adverse impact on economies that were previously only achieving low growth rates. Of all places Italy, which was among the eurozone’s poorest performers in the last quarter with quarterly growth of –0.3 percent, is now being severely hit by the crisis. Two quarters of negative growth are almost inevitable here. Major economic restrictions are also being adopted in many other countries to stem the spread of the virus. Unlike in the USA, the European Central Bank (ECB) has not cut its key rate yet. As the ECB has pursued an extremely expansive policy in recent years, there is now little room to reduce interest rates further. Christine Lagarde, President of the ECB, indicated that she primarily hopes to see significant support from fiscal policy.

    Growth, sentiment and trend

    In percent

    The graphic shows the growth in real GDP, its trend and a leading economic climate indicator for the eurozone since 1995. Our economic indicator points to an upturn in growth for the coming quarter. However, in view of the coronavirus, the indicator is now too optimistic.
    Source: Refinitiv, PostFinance
  • A month ago it seemed as though coronavirus would primarily have major economic consequences for China and its neighbouring countries. But while the number of cases is rising around the world, the countries in East Asia have stabilized and even reduced the number of new infections. This means there is a good chance that these countries will return to normality more quickly than other regions. However, the consequent weak demand from Europe and other parts of the world could hold back a return to normal. The measures introduced have also had a huge impact in Asia. The first figures for January and February indicate that there has been a huge downturn in China in both the retail sector and industrial production. China is now set to post the first negative quarterly growth since Mao Zedong’s cultural revolution.

    Growth, sentiment and trend

    In percent

    This graphic shows the growth in real GDP, its trend and a leading economic climate indicator for an average of emerging markets since 1995. After the latest poor figures from China, our leading indicator shows growth of around just 3 percent for emerging markets instead of 4.5 percent for the current quarter.
    Source: Refinitiv, PostFinance

Global economic data

Indicators Switzerland USA Eurozone UK Japan India Brazil China    
Indicators
GDP Y/Y 2019Q3
Switzerland
1.1%
USA
2.1%
Eurozone
1.3%
UK
1.2%
Japan
1.7%
India
5.1%
Brazil
1.2%
China   
6.0%
Indicators
GDP Y/Y 2019Q4
Switzerland
1.5%
USA
2.3%
Eurozone
1.0%
UK
1.1%
Japan
–0.7%
India
4.7%
Brazil
1.7%
China   
6.0%
Indicators
Economic climate
Switzerland
USA
Eurozone
UK

Japan
=
India
=
Brazil
=
China   
Indicators
Trend growth
Switzerland
1.5%
USA
1.7%
Eurozone
1.0%
UK
1.6%
Japan
1.0%
India
5.1%
Brazil
0.9%
China   
6.1%
Indicators
Inflation
Switzerland
–0.1%
USA
2.3%
Eurozone
1.2%
UK
1.8%
Japan
0.7%
India
6.6%
Brazil
4.0%
China   
5.2%
Indicators
Key rates
Switzerland
–0.75%
USA
0.00%
Eurozone
0.00%
UK
0.25%
Japan
–0.10%
India
5.15%
Brazil
4.25%
China   
4.05%

Source: Refinitiv, PostFinance

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