The super-cycle is no longer a guaranteed source of growth. Two important drivers are already displaying signs of a slowdown this year. First, the growth in the price of residential property has already weakened – not least as a result of various measures to curb price rises – and Credit Suisse economists assume that the market will continue to cool in the coming year. Second, immigration has most likely passed its peak. In 2014 net immigration will probably decline only moderately, but this trend should intensify in 2015, amongst others as a result of slower employment growth. However, one potential driver of the super-cycle remains in place, even if its impact has weakened: Interest rates will stay at zero for the coming year. Since the European Central Bank (ECB) will have to embark on a more expansionary course if it wants to combat the risk of deflation, the SNB will in the view of Credit Suisse economists maintain its zero interest rate policy in order to preserve the minimum EUR/CHF exchange rate of 1.20. In view of the low rate of inflation in Switzerland (2014: 0.1%; 2015: 0.5%) and business cycle risks, there is no reason for the SNB to alter its monetary policy.

Consumer growth around half the level seen in 2013
Compared to the past two years when the growth rate was well over 2%, consumer growth has now lost much of its momentum. Credit Suisse economists are predicting growth of 1.2% for this year and 1.0% for 2015. They believe that various factors have contributed to the slowdown in consumer growth. The market for consumer durables is, for example, becoming saturated, and the number of new consumers is declining as a result of slower immigration. In addition, the period in which price discounts were being driven by exchange rate appreciation is over, and the distortions caused by the restructuring of hospital financing – which inflated the figures for the growth in healthcare consumption in 2013 – are disappearing. The economists also predict lower levels of capital spending in 2014 and 2015 (forecasts for capital spending on machinery and equipment stand at 1.0% and 2.0% for 2014 and 2015, respectively), a trend that can be attributed to subdued demand for exports. Capital spending on new construction also looks likely to fall from 3.5% this year to 1.0% in 2015 in response to the general slowdown in construction demand and reduced capacity expansion in the construction sector.

Most Swiss companies expect bilateral agreements to remain in force
The low propensity to invest is due, to a small extent, to the approval of the initiative against mass immigration. According to a survey of purchasing managers carried out by procure.ch (the trade association for procurement and supply management in Switzerland) in conjunction with Credit Suisse, 10% of Swiss companies intend to increase their level of capital spending outside Switzerland due to the change in the operating environment. However, the large majority of companies have made no change to their capital spending plans. Three-quarters of companies also assume that Switzerland will find a solution with the European Union (EU) and that the bilateral agreements will therefore remain in force after February 9, 2017.

Export sector not in full swing
In view of the sluggish recovery in the euro zone and the depressed investment climate, the recovery of the Swiss export sector is likely to be too modest to compensate for the loss of momentum in the domestic economy. Credit Suisse economists are predicting export growth of 5.0% in the coming year, after 3.0% in 2014. More than half of Swiss export revenues are generated in the EU. The German federal state of Baden-Württemberg alone imports more Swiss goods than China and Hong Kong together. This is just one example to illustrate the close ties between Switzerland and the EU. This relationship is one of the main areas examined in ‘Monitor Switzerland’, which was published today by Credit Suisse economists. The latest issue of this publication also shows that Swiss exporters have benefited more from the bilateral agreements than the EU has.

Economic growth in the demographic trap
The slowing of the super-cycle in China and other emerging economies and the question which of these countries are best placed to return to sustainable economic growth is another core topic covered in ‘Monitor Switzerland’. An analysis of global demographic trends shows that many countries – especially China but also nations such as Germany – are now facing the possibility of a ‘Japanese scenario’ with a declining population. According to a simulation carried out by Credit Suisse economists, economic growth in Switzerland will also be jeopardized in the long term if there is no immigration. If there is no change in labor force participation and no immigration, the working population will start to decline as early as 2017. The increased mobilization of the working potential of women and older employees would merely postpone the downward trend for about five years. Economic growth in Switzerland would continue to decline significantly and, in a little over 10 years, the result could be economic stagnation.

Various aspects of the Swiss economy explored in a single publication
The latest issue of ‘Monitor Switzerland’ also shows how the fiscal importance of expenditure-based taxation varies between cantons and highlights the sectors in which the greatest number of bankruptcies can be expected. Forecasts for the real estate market and a commentary on the concept of an extended Free Trade Agreement with the EU complete the range of topics discussed in ‘Monitor Switzerland’.

‘Monitor Switzerland’ is published quarterly. The next issue will appear on December 11, 2014.