Business Cycle Forecast Switzerland: Moderate Growth – for the Industry too
According to the Institute of Business Cycle Research (KOF), the Swiss economy is recovering slowly. By 2018, the demand for Swiss goods and services in the forecast period will increase slowly. «The economy will grow moderately, nothing euphoric, in the sense that there will be no boom », says Jan-Egbert Sturm, Director of KOF.
The economy will grow moderately with a BIP increase of 1.6 percent this year and 1.8 percent in 2017. The inflation will be positive again in 2017, but it will increase only slightly.
No Brexit side effects
As in the previous quarters, the global economy will continue to register moderate growth. The biggest growth contributions to Swiss exports however, will continue to come from the EU space (+1 percent) just as before, followed by China and North America, which add up to 1 percent plus together. The growth rates in China will drop successively due to the structural changes there, while the economic upswing in India is expected to continue. If the political development and the raw material prices remain stable, Russia and Brazil too can be expected to make positive contributions to global economic development. The KOF presumes, that the attempted exit of the United Kingdom from the EU will not result in any major short-term or long-term upheavals, and that the economy of the United Kingdom will continue to be supported by a somewhat more expansive fiscal- and gold policy, so that the weakening of economic output will remain within limits. Consequently, the adverse effect on the Euro zone too is expected to remain insignificant. In fact, the moderate recovery in the Euro zone will continue. « Even if Brexit were to have a negative effect on the British economy, it would not have any serious consequences for Switzerland, » adds Sturm.
BIP sank due to industry
After 2015 was characterized by the reversal of the minimum currency rate, the general conditions are expected to improve for the Swiss economy appreciably. The official figures of the (Swiss) Federal Statistical Office (BFS) on sectoral development in the previous year indicate that essentially industry was affected much more by the appreciation of the Swiss Frank than was expected earlier. The earlier impression that industry could increase its quantitative production due to big margin losses must be revised. The official figures show that the price drops were essentially lesser than surmised in the initial assessments. As a result of the BFS data, industrial production dropped by 0.9 percent and contributed –0.2 percentage points to BIP growth. « In the past, the pharmaceuticals industry in particular supported the manufacturing industry. At present however, growth is perceptible in all industry sectors, » says Sturm. « But there still are winners and losers, most of all in the MEM sector. »
Further pressure on the Swiss Frank
At first glance, the Swiss export economy appears to have absorbed the Frank-related shock of the previous year, thanks to a solid export growth in the first half of 2016. Export development was very different in the past quarters: Thus, more than anything else, the export of pharmaceutical products increased sharply. The pressure on the Swiss Frank will continue and the Swiss Reserve Bank will have to continue its expansive fiscal policy with negative interest rates for a while as counter-balancing measure. The KOF presumes that there will be a stable currency rate of 1.10 against the Euro during the entire forecast period.