Reuters | Mar 30, 2020 10:21
By John Revill
ZURICH (Reuters) - The outlook for the Swiss economy has sunk to its lowest level in five years, a leading indicator showed on Monday, in the first reading of how the coronavirus outbreak will hurt the country's export-driven economy.
The KOF Economic Barometer fell to 92.9 points in March, its lowest since the Swiss National Bank scrapped its Swiss franc peg to the euro (EURCHF=) in 2015.
The March reading, well below the long-term average of 100, points to the expected performance of the economy in six months time.
Michael Graff, head of economic forecasting at KOF, said he expected the barometer to decline in the months ahead and eventually reach levels last seen during the great recession of 2008/9, when it hit 60 points.
"There will be a big recession and a big loss of GDP, but how bad we do not know," he said.
"To determine what will eventually happen is outside the realm of economics and more in the realm of virology and politics," he said.
Two Swiss companies - engineering group ABB (S:ABBN) and cement maker LafargeHolcim (S:LHN) -- have already made profit warnings while the government has responded to the outbreak with a partial lockdown of some businesses.
The country's death toll has reached 257 people, while 14,336 people have tested positive for coronavirus.
KOF this month had outlined three scenarios for the Swiss economy this year, with its base case pointing to growth of 0.3%, well below the average rate of 1.7%.
However it highlighted one case marked by business uncertainty, increasing household debt, supply chain bottlenecks, and widespread liquidity problems.
In this scenario, accompanied by a strengthening Swiss franc, the economy could slip 2.3% this year, KOF said. The government has already forecast a contraction of 1.3%.
"I think our worst-case scenario published on March 16 is much more likely to come true now," Graff said. "That was based on a partial shutdown for a few months and an assumption that the virus will remain for around a year.
"It's a safe bet to say we will see a decline in the readings next month as more people work from home and many companies don't respond because they are not operating at the moment, so we will have a bias here," he added.
Still, he did not think the downturn would lead to a big rise in unemployment, with the government supporting companies through its short-time working compensation scheme.
While manufacturing and tourism sectors would bear the brunt of the downturn, financial services would be relatively unaffected while pharmaceuticals - Switzerland's biggest export sector - could benefit.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.
More content, faster quotes and charts, and a smoother experience is available only on the App.