Weaker global economy also slows Swiss economy

Economic forecasts by the Swiss Federal Government’s Expert Group, summer 2019* – The Expert Group is expecting moderate GDP growth of 1.2 % for 2019. The weakening of the global economy is slowing down Swiss foreign trade, while the considerable uncertainty is weighing on investment activity. Economic growth is set to increase in 2020 and rise to 1.7 %.

In the first quarter of 2019, both the international and the Swiss economy have seen significant growth. However, the outlook remains subdued and uncertainty is still high. The Expert Group is therefore maintaining its assessment that the Swiss economy will only experience below-average growth in 2019 (+1.2 %; March forecast: +1.1 %) before growth rises to 1.7% (unchanged) in 2020.

In the wake of the declining momentum in the international economy, the development of world trade is weak and demand for Swiss products is flattening out, slowing down the export economy. Declining capacity utilisation coupled with considerable uncertainty is curbing companies’ investments in their production capacity. Investment in construction is also expected to stimulate growth only moderately, with vacancy rates climbing while building permits are falling.

The situation on the labour market in 2019 remains favourable overall. The average unemployment rate for the year comes in at a low 2.4 % and employment continues to grow, although less dynamically than in the previous year. Wages could rise moderately again, with limited inflationary pressure at the same time (annual inflation for 2019: 0.6 %). This will benefit households’ purchasing power, and private consumption is gaining a little momentum after a weak 2018.

Provided that the international trade conflict does not intensify dramatically, the global economy and world trade will grow more strongly again in 2020. This will also support Switzerland’s exports. At the same time, investment activity will recover. In addition, consumption expenditure growth will accelerate in the wake of rising real income and an ongoing increase in employment. Meanwhile, the current economic slowdown will have a somewhat delayed impact on the unemployment rate, with the Expert Group expecting an increase to an annual average of 2.6% for 2020.

Economic risks

Downside risks continue to predominate for the global economy. Initial consequences of the trade dispute with the US have materialised in China, where the development of foreign trade is disappointing and growth has slowed over the past few quarters. With the recent tariff increases, the trade dispute has taken an unfavourable turn. If the situation were to intensify further, the global economy, and thus the Swiss economy, would be expected to cool off more strongly, particularly if the EU and Germany were to be significantly affected. Conversely, the domestic and the foreign economy could pick up again more strongly in case of an agreement on important aspects of the trade dispute.

Political uncertainty remains high in Europe. In particular, it is unclear how and when Brexit will come into force. Moreover, Italy’s uncertain economic and financial situation is still an issue. In Switzerland’s relationship with the EU, the uncertainty has decreased somewhat with the acceptance of the corporate tax reform, but it persists in connection with the framework agreement. Should relations with the EU deteriorate significantly, Switzerland’s attractiveness as a business location and companies’ investment activity could suffer.

In view of simmering imbalances, the risk of a major correction in the Swiss real estate sector remains. Conversely, there is also the possibility that the domestic economy, both in Switzerland and internationally, will pick up more strongly than forecast owing to the good situation on the labour market. This would benefit the domestically oriented service sectors in particular.

*More detailed information on the Expert Group’s forecasts can be found in the quarterly publication “Konjunkturtendenzen”, which is available in German and in French, online (www.seco.admin.ch/konjunkturtendenzen) and in printed form as a supplement to the magazine “Die Volkswirtschaft” (www.dievolkswirtschaft.ch).

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