Macroeconomic Conditions During COVID-19

ECO 119: Macroeconomic Conditions During COVID-19

Country of Interest: Switzerland

Objective

Located centrally in Western Europe, Switzerland is home to over 8 million people hosting a diverse ethinic and linguistic population, this country is a textbook example of a thriving national-state politically and economically for centuries. As model state, Switzerland houses a low unemployment rate, a highly-skilled workforce, subsequently serving as a world banking and finance service powerhouse, producing high-end technology whilst maintaining strong political and economic independence (EU Exclusionary), Switzerland is composed of many unique socio-economic characteristics that inspires our curiosity in investigating its macroeconomic variable changes during a pandemic. The two driving qualities of Switzerland therefore motivating our intrigue are its economic resilience and its political and social institutional stability. (Central Intelligence Agency)

Economic resilience during downturns is nothing new to the swiss best shown in the 2008 collapse. In reality no country globally was spared during the 2008 economic collapse, as a hub to banking and financial services as well as its gradeos exposure to international markets Switzerland like all countries experienced a heavy economic contraction. But unlike other western countries the swiss implemented effective fiscal policy limiting its impact, but most fascinating was its ability to overcome the collapse without accumulating exuberant amounts of debt. In complete contrast to behemoth economies like the United States or The European Union, Switzerland since the recession has shockingly progressively declined its national debt year over year. (The Swiss ‘Miracle’)

Switzerland’s political and social institutions have been models in the international community for generations. The swiss’s economic elevation cannot be explained without its social institutions. Specifically its stable and transparent political organizations, healthy public finances, attractive corporate and personal wealth tax, strong infrastructure and connectivity, progressive education and jobs system and innovation cultivation policies have all played effective roles in the strength and evolution of its economy. (World Economic Forum) Therefore with such a strong economy and subsequent characteristics as Switzerland, how does an unprecedented modern pandemic impact a globally reliant country such as Switzerland?

Macroeconomic Variables

This semester we plan to track many important macroeconomic variables of Switzerland including unemployment rate, inflation rate, household savings, net exports, and GDP. Due to the pandemic, we find these variables particularly interesting to truly track how and why they may have shifted. The unemployment rate, tracking the percentage of the labor force that is jobless was very low in Switzerland pre-pandemic. From October 2019 to January 2020, the unemployment rate slowly went from 2.1% to 2.5% (“Switzerland Unemployment Rate.”).  Although low, the rate was on an upward trend. A look at the inflation rate of Switzerland shows much inconsistency pre-pandemic. This measure of the average price of a basket of goods over time reveals that Switzerland faced deflation in October to November of 2019 and then rose to a .2% inflation rate right before the pandemic hit (“Switzerland Inflation Rate.”).

One of the other important macroeconomic variables to understand about Switzerland is the Swiss Franc, their currency. The Swiss currency has a notoriety of being a place of refuge or hard cash, mostly in budgetary vulnerabilities. It is routinely utilized as a worldwide hold cash and is the 6th most exchanged currency on the planet (“Merchant Stronghold”).  We will track multiple different variables regarding the Swiss currency amid this global pandemic. The Swiss GDP is a major indicator of why their economy is famously known as so strong. The strength of the Swiss economy comes from international outreach and strong intertwining with the economies of other countries. Switzerland’s GDP in 2019 was around 556.23 billion international dollars. Quarter 3 of 2019, the Swiss GDP expanded by 0.4%, and in quarter 4, expanded by 0.3%. On the whole, the economy grew 0.9% in 2019, which was a slowdown from the 2.8% expansion in 2018. (“Focus Economics”). Overall, pre COVID19, the Swiss GDP was going through expansion, and we will focus on what exact factors have affected the GDP throughout the pandemic and look into why it has fallen in such a short period of time.

Furthermore another macroeconomic variable we will be looking at is the national savings rate as Switzerland places 10th on that list at 34%. This is an interesting variable to examine because with a higher savings, one could presume the reduction in economic growth but as we can tell above, Switzerland pre COVID19 was moving through an expansion. Lastly, we will be looking at Switzerland’s net exports, which valued at $314.5 billion in 2019, an uptick of 7% increase from 2015. We will expand our findings in our next paper to further explain how this dollar amount has changed and whether it harmed or helped Switzerland’s overall economy.

Works Cited

“Switzerland Inflation Rate.” Trading Economics 2020, Trading Economics ,   tradingeconomics.com/switzerland/inflation-cpi.

“Switzerland Unemployment Rate.” Trading Economics Calendar, Trading Economics,      tradingeconomics.com/switzerland/unemployment-rate.

Geiger Thierry Geiger, Thierry. What Makes Switzerland so Competitive? World Economic Forum, 3 Mar. 2014, www.weforum.org/agenda/2014/09/makes-switzerland-competitive/.

“The World Factbook: Switzerland.” Central Intelligence Agency, Central Intelligence Agency, 1   Feb. 2018, www.cia.gov/library/publications/the-world-factbook/geos/sz.html.

Mombelli, Armando. “The Financial Crisis of 2008 and the Swiss ‘Miracle.’” SwissInfo.ch, 14 Sept. 2018, www.swissinfo.ch/eng/10-years-after-the-collapse-of-lehman-brothers_the-financial-crisis-of-2008-and-the-swiss–miracle-/44397608.

“Merchant Stronghold” CHF- Swiss Franc. May 31, 2017. https://www.merchantstronghold.com/currency/chf-swiss-franc/.

“Focus Economics” Switzerland: Economic Growth Moderates Slightly In Q4 2019. March 3, 2020.https://www.focus-economics.com/countries/switzerland/news/gdp/economic-growth-moderates-slightly-in-q4-2019.

Probasco, Jim. “Top 10 Countries That Save the Most.” Investopedia, Investopedia, 28 Aug. 2020, www.investopedia.com/articles/personal-finance/022415/top-10-countries-save-most.asp .

Workman, Daniel. “Switzerland’s Top 10 Exports.” World’s Top Exports, 6 Aug. 2020, www.worldstopexports.com/switzerlands-top-10-exports/.

You will work with 3-4 other students in your time zone (and ideally in your section of this class, so you can work together during Thursday’s interactive Zoom classes) tracking the macroeconomic conditions in your country of choice (but not the United States). I understand the desire to stick with something familiar (e.g., Canada or Ireland), but why not use this as an opportunity to learn something new about a country relatively unknown to you, e.g., India or Argentina, both of which are very interesting now macroeconomics-wise?

Variables to be tracked throughout the semester include—but are not limited to—those macro variables deemed important in our SR, MR, and LR models.

• You may also want to note and track any other macro variables, which you think may be important, e.g., in whether you would invest in a country index fund for your country—even though we are not explicitly modelling them in this class.
• You will also discuss the effects or possibly the trade-offs (that is, “the good and the bad” or costs and benefits) of the macroeconomic policies undertaken by federal governments and relevant agencies to deal with the macroeconomic effects of the pandemic—what the effects of these policies were or are expected to be.
• You will also discuss any other relevant shocks to the macroeconomy of the country under study (e.g., a severe far-reaching hurricane may be an adverse supply shock).

“Deliverables” are: • 1-2 page proposal: due by 4:30 p.m. on Friday, September 18: Why you chose the country you did; Macro conditions before pandemic according to key macro variables you plan on tracking; • 4-5 page mid-semester report: due by 4:30 p.m. on Friday, October 23: Macro conditions during pandemic and several policies with their effects and a critique (which refers to both actual or expected positive and negative effects); • 8-10 page final report: due by 4:30 p.m. on Friday, December 4: latest possible data for the macro variables of interest that you have been tracking; updates on trade-offs or effects of macro policies undertaken or planned and other relevant “shocks.” • If there is time, your group may be asked to make a Panopto or Zoom presentation during class. • You will be asked to evaluate your own and other group members’ performance in contributing to the final report; you will be asked to consider several elements, including each person’s responsiveness to other group members and how much responsibility each member assumed. Each group member is expected to write at least 2-3 pages of the final report and to have contributed to the discussion behind all sections of the final report.

John: national savings rate, net exports