Economic forecasts by the Federal Government’s Expert Group – autumn 2018* – The Expert Group is significantly raising its forecast for GDP growth in 2018 from 2.4% to 2.9%. The favourable international economic development is stimulating foreign trade, and companies are investing heavily. The forecast for GDP growth in 2019 remains unchanged at robust 2.0%. However, the negative risks significantly outweigh the positives and threaten the global outlook.
The Swiss economy is booming. GDP has risen rapidly over several quarters, employment is on the up and unemployment is falling. Industry has enjoyed particularly strong growth, with capacity utilisation now at a level not seen since 2011 and order books continuing to look well filled. Reports from the service sector also indicate that business is doing very well overall. The Expert Group therefore expects very strong GDP growth of 2.9 % for 2018 overall (June forecast: 2.4%), although some indicators currently point to a loss of momentum.
Exports should continue to provide a substantial boost to growth. Although there was a noticeable upturn in the Swiss franc in the wake of increasing international uncertainty over the summer months, the exchange rate nevertheless remains favourable in comparison to the past three years. The Expert Group also expects global economic growth to continue robustly. For instance, the outlook for the US remains bright despite what has already been a prolonged recovery and growth in China is expected to continue steadily – a positive development that will support demand for Swiss products. A premise for this, however, is that the international trade dispute fails to escalate globally.
In light of high international demand, Swiss companies are increasingly expanding their production capacities. On the one hand, investment in equipment should therefore continue to grow strongly. On the other hand, construction activity should also gain some momentum. Although rising vacancy rates in certain segments indicate a saturation of the housing market, commercial construction is expected to grow dynamically over the next few quarters. In the second half of 2018, the domestic economy will therefore be particularly underpinned by investment activity.
At the same time, Swiss companies are planning to recruit more staff. In light of this, the Expert Group predicts that the labour market will continue its positive development. Employment is likely to grow appreciably once again (+1.8% in 2018) and unemployment dropping further (to an annual average of 2.6% in 2018) in the coming quarters. However, the benefits to private household consumption will be limited at first, since growth in individual income will be dampened by weak nominal wage increases while inflation will rise to 1.0% on average in 2018 due to higher import and energy prices.
Growth in the domestic economy is set to become more important compared to foreign trade over the course of 2019, with private consumption in particular looking likely to make gains. While the situation on the job market is due to brighten further (employment: +1.1 %, unemployment rate: 2.4 %), real incomes are also expected to grow moderately. The fact that inflation will drop to an annual average of 0.8 % in 2019 will also help here. By contrast, the global economy is likely to lose further momentum as the economic situation normalizes. Accordingly, the impulses for Swiss foreign trade will also be lower. Overall, the Expert Group is keeping to its previous assessment for 2019 and anticipates robust GDP growth of 2.0 %.
Key negative risks for the global economy have intensified over the past few months and new ones have arisen. In particular, the international economy could slow down faster than assumed in this forecast. This would be most likely if the trade disputes between the US and other major economic areas were to escalate further. Global trade overall and Swiss foreign trade would be severely affected and companies in Switzerland could end up cutting back on their investments.
Political uncertainty in Europe remains high. In particular, the lack of clarity on the Italian government’s plans is causing great uncertainty. It also remains unclear what the relationship between the EU and UK will look like once Brexit comes into force in late March 2019. What is more, some emerging economies experienced major exchange rate turbulence and capital outflows in the summer months, triggered primarily by rising interest rates and the excellent state of the US economy, which make the country more attractive to investors. Should the fluctuations, which are currently still limited to a handful of countries, spread to other economies or the political risks mentioned come to fruition, the Swiss franc could come under stronger upward pressure as a safe haven. This would have a considerable curbing effect on Swiss foreign trade and on economic growth.
As was the case in the last forecast, the risk within Switzerland is ultimately that simmering imbalances in real estate could lead to a major correction in this sector.
* More detailed information on risks and the Expert Group’s forecasts can be found in the quarterly publication “Konjunkturtendenzen” (“Economic Trends”), which is available online (www.seco.admin.ch/konjunkturtendenzen ) and in printed form as a supplement to the political economics magazine “Die Volkswirtschaft” (www.dievolkswirtschaft.ch).