How Does An Economic Downturn In Germany Impact Switzerland?

Ever wondered about the impact of an economic downturn in Germany on Switzerland? Well, it appears, that there could be some serious concerns staring at both nations in the not so distant future!

Germany certainly happens to be the strongest European economy. It’s not a revelation, but is in fact, common knowledge. Despite being challenged at countless ends, such as being stymied by the sluggish growth in the automobile sector and a jaded services sector, Germany still happens to be a European powerhouse.

Despite being faced by a hitherto unfamiliar position of nosediving business confidence, nearing the outbreak of recession, the general feeling is that the German economy is miles ahead those of Belgium, Austria, Poland, and the likes.

Yet, where there is an economic downturn, there’s a collective swathe of problems that strike the country lying at the epicentre and those that are linked with its economy. Therefore, it’s needless to say that among the countries that will feel the brunt of an economic downturn in Germany will be a close business ally: Switzerland.

So, it is about time that one tried to understand or study the impact of economic downturn in Germany on Switzerland. But first up, some market realities.

The German and Swiss economies are closely linked since the late nineties. In fact, experts suggest that in the past decade and a half, Germany has emerged as Switzerland’s most important trading partner.

To just understand how closely are the two economies linked to each other, it makes sense to revisit some data from 2017:

In 2017, Switzerland exported goods worth CHF 44.7 billion to Germany. Imports amounted to CHF 54.5 billion in the same period, giving a total trade volume of CHF 99.2 billion.

The fact that Switzerland largely depends on its foreign trading partners holds the key to understand why an economic downturn in Germany will impact one of the world’s most widely-loved and politically neutral countries.

That said, if the German economy suffers some form of a blow, it would be pivotal for Switzerland’s economic fortunes.

Perhaps nothing can explain the above rationale better than the statistical finding by Swissinfo.ch, among the most widely read websites in all of Switzerland:

In absolute terms, Swiss exports to Germany rose from CHF28 billion in 2000 to around CHF44 billion in 2018. This corresponds to average annual growth of around 2.5%.

In relative terms, the importance of the German economy for Switzerland is declining. In 1995, 24% of all exports went to Germany, in 2011 it was still 20%. Exports to Germany then fell further.

And that told, one must dive deeper into the export equation between the two nations.

In its current capacity, more than 15% of Switzerland’s exports go to Germany. So if there’s a decline in demand in Germany owing to the worrisome concerns generated thanks to a possible recession, this could receive a blow.

Moreover, from a sector-specific approach, the electrical and engineering industries in Switzerland are heavily dependant on Germany. The chemical industry in Switzerland also caters heavily to Germany. Therefore, concerns that the impact of an economic downturn in Germany on Switzerland can be crucial aren’t far-fetched or irrational.