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LLB Annual Report 2020 de

Economic environment

Information checkedInformation geprüft Economic environment

The corona pandemic plunged the global economy into a severe recession during the year under report. However, governments and central banks succeeded in cushioning the shock. According to estimates of the OECD, gross domestic product is predicted to attain pre-crisis levels again only by the end of 2021.

International perspectives

The repercussions of the Covid-19 pandemic left deep scars in the global economy in 2020. Although the developed economies improved sharply during the summer months following the plunge in spring, the losses incurred in the first half year could not be compensated for. The situation was exacerbated by the second corona wave. The pandemic will also largely define the development of the global economy in 2021. In addition, the trade conflict between the USA and China will continue to smoulder. No rapid resolution of this conflict is to be expected even with the new Biden administration in the US.


The corona pandemic pushed the US economy into a crisis in spring 2020, millions of people lost their jobs. Although the economy began to recover quickly after the lockdown, it again stalled on account of the resurgence of the pandemic and the loss of real household income towards the end of 2020. A recovery package totalling USD 900 billion will provide the economy with robust support during the coming quarters. The boost to growth this will generate for 2021 / 22 is estimated at 1.7 and 0.7 percentage points respectively. Since the democrats now also have a slight majority in the senate, a further stimulus programme is generally expected. The Fed has also announced that it will do everything in its power to support the upswing and maximise employment, even permitting a temporary "overshooting" of inflation.

Euro zone

The euro zone was hit particularly hard by the corona pandemic. Whereas the US economy fell by 10 per cent in the first half year, in the euro zone the decrease was 15 per cent. Acting from necessity, the various governments reacted to the crisis with extraordinary efforts. The EU temporarily suspended fiscal rules and announced a reconstruction fund amounting to EUR 750 billion to support the member states. The epidemiological conditions will improve in spring and the swiftly progressing vaccination campaign should lead to a improvement in economic activities from the second quarter of 2021. Fiscal policy is the euro zone is likely to remain very expansive.

Switzerland / Liechtenstein

In contrast to other countries, the employment market in Switzerland and Liechtenstein remained extremely robust during the corona crisis. Nevertheless, here too, there were salary reductions due, for example, to short-time work. It remains to be seen what effects the pandemic will have on long-term wage growth.

For small, open economies, such as those like Switzerland and Liechtenstein, the recovery will largely depend on how demand among their most important trading partners develops. These countries’ economies should also benefit from the fiscal impulses in the US and the euro zone. In general, it is assumed that value creation could again attain its pre-crisis level by the end of 2021.

Liechtenstein financial centre

The corona pandemic caused distortions in the real economy. However, the repercussions for the Liechtenstein financial sector remained limited in 2020. Although client assets under management fell significantly in the first quarter, they had largely recovered by the end of the year. The rate of non-performing loans increased marginally. In comparison with other European banks, the Liechtenstein financial institutes are still well capitalised and have a low loan loss ratio. However, the number of defaulted loans could climb in 2021. The additional challenges facing the Principality lie in the already well-known areas of digitalisation, negative interest rates and geopolitical conflicts.

From the viewpoint of financial stability, however, Liechtenstein is still well prepared for the future challenges thanks to its solid fiscal data and the high capitalisation of the financial sector.

Interest rates

An end to the expansive monetary policy of the central banks is still not to be expected. In addition to the Anglo-Saxon central banks, those in the developing countries have also reduced interest rates. Furthermore, purchases of securities have again been expanded. For example, the European Central Bank (ECB) expanded the scope of purchases of securities in accordance with the Pandemic Emergency Purchase Programme (PEPP) by EUR 500 billion to a total of EUR 1'850 billion in December. The Swiss National Bank (SNB) also retained its expansive monetary policy. Moreover, it stressed that it would continue to consider intervening on foreign exchange markets – even though in December 2020 the SNB was officially designated as a "currency manipulator" by the US. No increases in interest rates are to be expected before the end of 2022. Both the ECB and Fed have stated this in their forward guidance, in which they announce their future monetary policy intentions.


Above all, the falling exchange rate of the US dollar caused a stir in 2020. In fact, the currency is still regarded as the number one lead currency, which investors turn to especially in times of crisis. However, in the middle of the worst global recession since the 1930s, the US dollar lost more than 8 per cent of its value against the currencies of its most important trading partners within just a few months. There are several reasons for the dollar’s weakness. These include the Fed’s expansive monetary policy against the backdrop of the Covid-19 pandemic, the US’s high level of government debt and the increased readiness to take risks on the financial market.

Whereas the US dollar largely forfeited its significance as a safe haven in the year under report, the Swiss franc was still in demand for just this function and will continue to be so in 2021. Consequently, further interventions by the Swiss National Bank may be necessary to mitigate the upward pressure on the value of the Swiss franc; this above all in relation to the euro. The value of the franc will be determined by the ECB’s monetary policy. Although the EU’s common currency also gained substantially in value in 2020, the Swiss franc continues to be overvalued. Accordingly, a euro exchange rate of CHF 1.20 continues to be unrealistic.

Equity markets

2020 will be remembered and as an exceptionally difficult year on the stock markets. On account of the great uncertainty in connection with the corona crisis, substantial price losses were incurred in February / March of the year under report. Thanks to robust support from monetary policy coupled with low interest rates and massive purchases of securities, as well as government fiscal packages of a previously unknown magnitude, prices largely recovered over the following months – although the pandemic left deep scars in the real economy. By the end of the year, positive vaccination news and the clear outcome of the US presidential election further reduced the number of uncertainty factors. Since the central banks will continue to pursue their expansive monetary policies for a long time to come, the investment crisis will persist. Consequently, equities will continue to represent a good alternative in 2021. However, in spring 2020, it was clearly shown again that equity investments can diminish in value sharply in the short term.