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UBP IAS Update: Investment Outlook July 2020

The UBP Investment Advisor teams in Zurich and Geneva started working from home as of March 16th, 2020, which is consistent with our business continuity plan and necessary for the safety of our team members given the early spike in COVID-19 incidents in Switzerland. Transitioning to remote working was relatively seamless as many in our team travel regularly and have the necessary equipment to remain connected at all times.

The main challenge to overcome early on was the lack of in-person contact with our clients and our colleagues. That said, our Senior Investment Managers and Senior Investment Advisors work hard to stay close to clients and prospects through electronic means in order to provide guidance and advice on navigating volatile and uncertain markets. In order to replicate the feeling of connection among our team members in our daily work from home offices, we have conference calls three times a week to discuss our projects and challenges, as well as to share success stories, and we also have had a series of virtual happy hours in order to allow us to reconnect on a social level.

While we appreciate many businesses have struggled with lockdown and social distancing, we have been fortunate to have the support and trust of our clients, as well as the support of our parent company, which has a very prudently managed balance sheet that helps to steer through times of crisis.

Since mid-May, our team has slowly begun to return to the office, and we will maintain a rotation of team members to mitigate risks of COVID-19 infection.

“Overall, our team spirit is very positive and I am very proud of our team’s resilience during this health crisis”
Deepak Soni, CEO UBP Investment Advisors SA,

Outlook July 2020

The second quarter 2020 was marked by lockdowns, negative macroeconomic news flow and uncertainties surrounding the pandemic. More than 200 countries around the world have been impacted by COVID-19 with more than 9 million confirmed cases and a staggering number of 500,000 deaths. While the majority of the industrialized world seems to have passed the peak of the pandemic, in developing countries such as Brazil and India the outbreak is still in full swing. Economic performance measured by GDP has been falling more sharply than we have seen in decades, representing the largest economic shock since the Great Depression. While some of the damage is already visible, there is still uncertainty about how dramatic the economic slump will be overall and how quickly individual countries will recover from this crisis. The baseline forecast for global GDP for all of 2020 shows a negative growth rate altogether. For the second quarter alone forecasts see a bottoming out of GDP at a rate of over – 8%, before recovering to around +3.5% to +4.5% in 2021. While overall Q2 GDP growth rates have fallen sharply, this will not have affected all sectors equally. Leisure and travel have been hit much harder than retail or the pharmaceutical industry, making the impact on individual economies vary depending on sector importance. Yet, latest high frequency data in many countries have started to show a brightening up in economic sentiment indicating that we may expect the first growth spikes to become visible in the third quarter.


In the same way as everywhere else, the outbreak of the pandemic in the US has set off a severe short-term blow to the economy. In March and April alone, more than 20 million jobs were lost, a 15% decrease of the total number employed relative to February. Generally negative expectations for the near term led first to rapidly declining consumer spending and a substantial drop in investment projects. These factors are the main drivers for an expected double-digit drop in the GDP growth rate in Q2/2020. The outlook for the US economy will, on the one hand depend heavily on the medical situation, like a potential second wave or improvements in upcoming treatments, while on the other, the speed of recovery will also be influenced by the situation of major US trading partners. Moreover, as some key emerging markets are lagging behind developed countries or are still facing the ongoing impacts of COVID-19, the negative impact on the US economy risks persisting for a little while. In this environment, the FED has slashed interest rates to near zero and has announced numerous measures to stabilize the financial system, such as unlimited purchases of US government debt and mortgage backed securities combined with the recent additional direct purchases of corporate bonds and ETFs. At the same time, massive fiscal support of roughly USD 3 trillion has been implemented to provide backing to the domestic economy. Furthermore, supporting measures such as direct payments to private households, raising overall household income above pre-pandemic levels, could lift private consumption above current expectations.


Widespread virus outbreaks across Europe towards the end of Q1/2020 have prompted governments to impose various mitigation measures like nationwide lockdowns as well as border controls and even travel restrictions between Schengen States. These disrupted economic activity significantly, especially the tourism sector. The Euro Area is expected to have experienced a double-digit contraction during the second quarter. Governments throughout the European Union have started to implement a wide variety of fiscal measures to fight a potential long-term recession. These actions include immediate fiscal impulse programs such as short-term labor benefits, cancellation or reduction of VAT as well as certain other taxes, medical resources and higher social security benefits. While these measures will stabilize economic momentum in the medium term, they lead to an immediate deterioration of budgets without compensation. Relative to GDP, they amount to between low-single digit figures in Hungary and double digit in Germany. In addition, some governments have even decided to defer certain corporate payments including taxes and social security contributions. These are temporary measures, which will have to be repaid in coming years. The third set of actions are liquidity provisions and guarantees, such as export guarantees, liquidity assistance to domestic companies and credit lines through banks. They amount to between 0.5% of GDP in Greece and almost 30% in Italy. These measures will not overstrain budget balances in 2020, but could create contingent liabilities in the future. While the German economy could shrink by as much as 6% to 7% this year, we expect a return to growth rates of between 3% to 4% in 2021 and 2022, bringing the economy to pre-crisis levels by the end of 2022. France, in contrast, is facing a much deeper recession this year as consumption and investments fell sharply due to one of the strictest shutdowns. The sharp fall of 2020 GDP is predicted to be around 8% to 10%; as a consequence, the rebound in 2021 is expected to be stronger. The slump in oil prices and a collapse in private consumption have reduced inflation pressures sharply across Continental Europe and a drop close to zero or even below seems realistic throughout 2020. Similar to other European peers, Switzerland implemented a lockdown in mid-March, albeit a relatively soft version. Subsequently, the country seems to have reached its lowest point in April, when GDP is estimated to have been close to double-digits below its 2019 level. Despite the fact that this could be the worst slump since the 1975 crisis, Switzerland with its favorable industry mix is already expected to reach 97% of pre-crisis GDP by the end of 2020, so experiencing a quite comfortable outcome relative to other developed economies. Due to the initially slower reaction to the pandemic, the UK seems to be a bit behind the majority of European countries. GDP could drop by over 7% in 2020 before rising again in 2021. Yet, the outlook for 2021 is still far from clear. The end of the transition period between the European Union and the UK at the end of this year could lead to additional uncertainties and a further contraction of growth in the first quarter of 2021.


Like in most developed countries, harsh measures helped slow the spread of the virus in Japan, but triggered a substantial fall in economic activity. Furthermore, the postponement of the Summer Olympic Games intensified this negative trend. The Bank of Japan (BoJ) reacted swiftly with an acceleration of its securities and corporate bond-purchasing program, expanding the size of its balance sheet by over 10% of GDP since January 2020. In addition, central government increased the fiscal support package to roughly 40% of GDP limiting the economic fallout to around 5% in 2020. As the Chinese economy was hit first by the pandemic, its output had already contracted sharply during the first quarter. In the second quarter however, when the rest of the world was hit by the pandemic, activities started gradually to normalize. Notwithstanding this, the economy is still expected to experience the lowest growth number for 40 years. However, the rebound in 2021 is expected to bring growth rates to pre-crisis levels of around 6% due to the expected recovery of global demand provided that trade tensions with the US do not worsen again.


  • Sabina Weber Sauser

Compliments of UBP Investment Advisors SA – a member of the EACCNY. 

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