GDP per sector

What can we learn from the first lockdown to limit the impact of another one? The lockdown implemented in the spring has led to the deepest recession since 1945. If it has to be repeated, targeted restrictions with financial compensations would be more appropriate. Who suffered in the spring? The data compiled by SECO allow us to analyze the GDP fall across the economic sectors during the first two quarters. The figure below shows the fall in GDP between the first half of 2019 and the first half of 2020 (blue bars), with a contraction of 5.1% of total GDP in nominal terms. As the lockdown was particularly marked in the second quarter, we also show the fall between the second quarter 2019 and the second quarter 2020 (green bars), with a fall of 8.7% for total GDP. The red bars show the share of the GDP that the sector accounted for in 2019 to give an sense of its economic weight (we focus on nominal GDP as this allows for a more detailed analysis). Evolution of nominal GDP -60% -50% -40% -30% -20% -10% 0% 10% 20% GDP Agriculture Extraction Chemicals and pharma Manufacturing ex. chemicals and pharma Electricity, gas Water and waste Construction Retail trade Trade ex. retail, car repair Transport; Information and communication Hotels and restaurants Finance Insurance Real estate, scientific activities,… Public administration Teaching Health and social services Arts and entertainment Other services Services to households Growth H1 2019 - H1 2020 Growth Q2 2019 - Q2 2020 Share to 2019 GDP

We see a clear heterogeneity across sectors. Two of them have suffered a lot, namely accommodation and food services (-58.7% in the second quarter of 2020 compared to the same quarter of 2019) and arts and entertainment activities (-45.2%). The fall is even more severe in certain segments, such as hotels catering to business and convention travelers. Similarly, the more modest decline in transportation, information and communication activities probably hides a worse situation for transportation activities. Manufacturing activities present an interesting contrast. Production in chemicals and pharmaceuticals has increased, while the other branches have experienced a notable decline, reflecting, among other things the weakness of international trade. In addition, the suspension of non-Covid-related medical procedures led to a decline in activity in the health sector despite the pandemic. The need for well targeted measures While economic activity clearly picked up during the summer, the second wave of the pandemic has arrived and is causing new confinements in Europe. It is therefore quite possible that our authorities will have to restrict economic activity again in the coming weeks. The challenge will be to calibrate the measures to get a better ratio between the health benefit and the economic cost. One possibility is to target the sectors of accommodation and catering and arts and entertainment activities. These activities bring people together, with a risk of infection clusters, especially if the discipline of health measures is relaxed. It may seem very unfair to target these activities that have already suffered enormously. True, but it is likely a strong resurgence of the epidemic would lead people to curtail their use of these services anyway, in which case we would have the economic cost without the health gain. The fact remains that the affected businesses would suffer very much and several of them would not be able to bear another round of weak business after the one in the spring. The health measures would therefore have to be accompanied by substantial economic support, going beyond a loan guarantee. If these loans were sufficient during the first wave, businesses now have less margin and outright transfers seems inevitable. The cost would be bearable. The two sectors concerned represent only 2.6% of GDP (red bars in the figure), that is 18.5 billion francs per year. As it will not be necessary to cover them entirely for twelve months, the bill would in fact be more modest and completely bearable for the public finances. It is better to go into debt by providing support than to go into debt as a result of falling tax revenues caused by an economic crisis, which would occur if the epidemic were to spread widely.