Economic forecasts

Switzerland: Economic situation in 2018 at its zenith

| Editor: Lina Klass

The good mood of companies and the upturn on the labour market are leading to a significant increase in investment in equipment and increasing consumer spending. BAK forecasts strong economic growth of 2.3 per cent for 2018 as a whole.
The good mood of companies and the upturn on the labour market are leading to a significant increase in investment in equipment and increasing consumer spending. BAK forecasts strong economic growth of 2.3 per cent for 2018 as a whole. (Source: Pixabay/Pexels)

This year the Swiss economy is on a solid growth course. According to BAK (independent Swiss economic research institute), the upswing has reached its zenith. The growth of Swiss GDP (gross domestic product) is expected to slow down in 2019.

This year the Swiss economy is continuing on a stable growth course. In particular, domestic business appears in excellent shape. The good mood among companies and the upswing on the labour market are leading to a clear growth in investments in industrial plant and consumer spending. For the whole of 2018, the BAK (BAK Economics AG) forecasts a strong growth rate of 2.3 percent.

Nevertheless, in the meantime the upswing has reached its zenith. The growth of Swiss GDP is expected to fall to 1.5 percent in 2019. The weaker international environment is mainly responsible for this. In particular, the Eurozone has already clearly lost some of its energy again. Growing anxiety about political developments in Italy and the global trade conflicts are also stifling growth.

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Strong domestic trade situation

Domestic demand has clearly grown in momentum recently. Both private consumption and industrial spending expanded in Q1 2018. In fact, industrial spending rose to a level last seen six years ago, whereby enterprises invested especially in research and development, automobiles and IT. For the whole of 2018, too, BAK expects a dynamic growth in industrial investments by 4.6 percent. The mood among Swiss companies continues to be very good, the order books are full and, in view of the increasing capacity utilisation, the need for extended investments is increasing. At present, private consumption is being driven mainly by the upswing on the labour market. Unemployment continues to fall and in April sank to 2.7 percent. The extensive order books and the high willingness of enterprises to invest suggest that the upward trend on the labour market will continue in the coming quarters. Therefore, for 2018 and 2019, BAK expects a strong growth in consumer spending (2018: +1.6%; 2019: +1.6%).

Dark clouds in the economic sky

Whilst domestic demand is currently a major driving force for the Swiss economy, the foreign economic environment, which was very friendly for a long time, has again darkened. The fall of the global procurement manager indexes during the past months indicates that the economic upswing will lose momentum in the coming quarters. However, one must not overlook the fact that despite the latest weakening, the present indicators can still be associated with quite solid growth rates.

In the Eurozone, the moods of enterprises have slumped mainly because of the trade conflict with the United States and the political uncertainty in Italy. In addition, in a few euro countries (e.g. Germany), there are capacity bottlenecks that will increasingly hamper growth in the coming quarters. The recent considerable increase in the price of oil is a further obstacle to growth. In the United States this year, faster economic growth is expected due to the extensive fiscal and tax package, despite many burdens similar to the Eurozone. Nevertheless, here too 2019 will see a slowdown in the rate of growth because the economic cycle is now far advanced and monetary policy will continue to tighten.

Thus, foreign demand for Swiss exports is again quite strong in 2018. Moreover, the trade-weighted external value of the franc has clearly fallen against last year. Although the franc has again gained value against the euro on account of the political uncertainty in Italy, the exchange rate should resettle at 1.18 EUR/CHF during the course of the year. Even if the rate of the franc remains unchanged, 2019 will be conspicuous for a weakening of global growth Therefore growth of Swiss exports and industrial spending should be a little slower next year.

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Boom year 2018, normalisation 2019

To sum it up, for 2018 BAK forecasts a 2.3 percent growth in Swiss GDP (previous forecast +2.4 percent) and in 2019 a 1.5 percent growth (previous forecast +1.7 percent). Responsibility for the slight downward adjustment of the forecast rests mainly with the dimmer global environment. Whereas in the boom year 2018 the effects of recovery from the franc shock contributed to the Swiss economy’s strong performance, a normalisation of economic development will occur in 2019.

The good mood among companies and the upswing on the labour market are leading to a clear growth in investments in industrial plant and consumer spending. For the whole of 2018, BAK forecasts a strong growth rate of 2.3 percent.

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