”Instead of counting on more government aid, everybody should roll up their sleeves”
Interview with Rudolf Minsch
In an interview, Rudolf Minsch, Chief Economist and Deputy Chair of the Executive Board of economiesuisse, talks about Switzerland’s current economic situation and which new legislative projects and initiatives can be expected in the future.
The COVID-19 pandemic has had a major impact on the economic situation in Switzerland. How do you feel about its short- and long-term repercussions on the Swiss economy?
We’re currently experiencing the sharpest economic downturn in decades. You’d have to go all the way back to the 1970s to find a comparable situation. Back then, the oil crisis caused Switzerland’s gross domestic product to contract by 6.7 percent. The slump in 2020 is likely to fall between 5 and 6 percent. And even in the wake of that, it will still take a while for economic performance to fall back into step. We also expect the unemployment rate to continue to rise next year and for recovery to be rather slow following a few early successes. Although the domestic economy might already be in pretty good shape again, the troubles with exports are far from being over. There, we can anticipate subdued demand for some time to come.
In their efforts to manage the crisis, the Federal Council and Parliament massively increased government spending and introduced new rules that were gradually relaxed and then tightened again in some cases. Is a return to the way things were before the crisis even possible? What will remain?
The federal government’s unprecedented relief measures prevented the situation from becoming the largest economic slump since World War II. These measures succeeded in stabilizing consumption in the short term and preventing a negative chain reaction in the economy. That was the right thing to do, without a doubt. Rising debt levels, however, will be a burden on generations to come. Fortunately, since we entered this crisis with a low level of national debt and are also benefitting from unusually low interest rates on that debt, a temporary increase in national debt will be manageable.
The economy is showing signs of a recession and the federal financial statements will end the year 2020 with an enormous loss in the billions. How can the economy and state get back on track?
The severity of the crisis will largely hinge on whether we can avoid a second wave with another partial lockdown. But even if it never comes to that, the massive government interventions will not be without any negative consequences. What we’re currently experiencing around the world is a partial nationalization of the economy. The government’s footprint has grown substantially, even in Switzerland, yet a sustained shift in our economic system toward more protectionism, isolation and state interventions would be detrimental to all. I’m convinced that a return to pre-coronavirus conditions can only happen if our economy and our society remember where their own responsibilities lie instead of constantly calling for new relief measures. The old saying that “God helps those who help themselves” describes this quite well: Instead of counting on more government aid, everybody should roll up their sleeves.
The new Parliament has now held three sessions and one special session. What can we hope to see during the rest of the legislative period, which extends until 2023? What would be particularly important from an economic perspective?
Politicians absolutely have to let this accelerated structural change happen, even if the process can be expected to be painful at times. The government can play a subordinate role, such as by increasing the funding earmarked for education, research and innovation or by remaining steadfast despite the crisis. Right now, it’s generally about preserving the good economic environment and improving it in a targeted manner. That will give companies a chance to adapt to the new realities and start creating jobs again soon.
Let me ask you a personal question: Are there any legislative projects or initiatives that you view with apprehension? Which regulatory projects, both public and private, pose the greatest threat to the economy?
There are two main initiatives at present that could have fatal consequences for the economy. One is the Responsible Business Initiative (RBI), which seeks to impose unprecedented liability obligations on internationally active companies around the world and would severely diminish the attractiveness of Switzerland as a business location. On the other hand, in late September we’ll already be voting on the termination initiative, which would gut the contractual basis of our relations with the EU, our most important trading partner. While both of these would be poisonous for our prosperity even in normal times, now they would be patently irresponsible given the magnitude of the economic damage sustained during the coronavirus crisis.