Swiss economy: A recipe for resilience in the time of Covid

Like it or loathe it, globalization has made our world smaller – increasing the interdependence of national economies and boosting international trade. As a small, open economy, Switzerland is highly active as a trading partner. In fact, the total value of Swiss exports and imports of goods and services corresponds to a remarkable 120% of the country’s GDP. Compare that figure to the total of around 50% in the case of the Eurozone and 22% in the US and the importance of international trade for the health of the Swiss economy becomes clear.

The arrival of Covid-19 in early 2020 not only signalled the start of a worldwide health crisis. The economic fallout from the pandemic was and still is enormous – both domestically and at a global level. In fact, in its World Economic Outlook published in June 2020, the IMF predicted that the worldwide trade of goods and services would decline by almost 12% this year.

Given Switzerland’s high level of dependency on exports, many observers expected it to be particularly affected by the corona-driven collapse in trade. However, analysts now predict that its GDP will be much less severely affected than that of its European neighbours. In fact, in the first half of 2020, Swiss GDP fell by ‘only’ 5.1% year on year, compared to a 9% decline in the Eurozone.

On the export front, Switzerland saw a 4.7% decrease compared to a massive 12.3% fall in exports from the Eurozone. There are, of course, winners and losers in every crisis – but is Switzerland’s resilience a matter of chance? Far from it, the sectoral composition of Swiss exports is of key importance in this context. Over the last 20 years, Switzerland’s focus has shifted heavily towards chemicals and pharmaceuticals. In fact, these industries accounted for more than 50% of all Swiss exports in the 12 months to August 2020, according to recent data, compared to 30% in 2000. The demand for chemicals and pharmaceuticals is driven by ageing populations in many regions of the world. Unsurprisingly, the level of demand for these exports has barely been affected by the pandemic – boosting Switzerland’s economic resilience.

In contrast, machinery and electronic goods today account for only 10% of Swiss exports, down from almost one-third in 2000. In the Eurozone, they make up a massive 40% of total exports. If we consider that machinery and electronics is one of the sectors hard hit by the crisis, this also goes a long way towards explaining the relative robustness of Swiss exports and the simultaneous weakening of the Eurozone’s export performance. In fact, the overall resilience of Swiss exports would suggest that the type of product exported is more important than the destinations it exports to. After all, Swiss exports held up well despite the Europe being Switzerland’s dominant trading partner – let’s not forget that the Eurozone is expected to see one of the sharpest declines in GDP in 2020.

In short: Pandemic or no pandemic, the needs of the world’s ageing population should continue to drive the growth in demand for Swiss-made chemical and pharmaceutical goods in the coming years – helping ensure that the Swiss economy remains in robust health.

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