gross-domestic-product-in-Switzerland-is growing-slowly
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Swiss Economy: Slow Acceleration

The gross domestic product (GDP) seems to be growing only slowly. However, the state of the Swiss economy is better than it appears at first glance. This is illustrated, among other things, by the continued recovery of exports and the growth of the domestic economy.

Economic growth is not impressive at present. However, it is gaining momentum and becoming more broadly based. We can therefore forecast growth of 1.5% for 2017 and of 1.7% for 2018.

GDP Quarterly Results Are Better Than They Look...

The word "disappointment" is making the rounds: According to the State Secretariat for Economic Affairs (SECO), the gross domestic product (GDP) in the first quarter of 2017 increased by just 0.3% on the previous quarter. However, the state of the Swiss economy is better than it appears at first glance: First of all, investments and consumption rose again and exports were up.

Secondly, prices went up again for the first time in three years, which points toward increasing pricing power. And thirdly the negative contribution of the "stocks and statistical deviations" component placed a massive burden on the GDP quarterly results (–1.7 percentage points). This component is strongly shaped by the trade of gold and commodities and therefore barely permits any conclusions about the momentum of the Swiss economy (see figure below).

gross-domestic-product-GDP-is-developing-positively

Volatile Stock Components

Real QoQ gross domestic product in %, seasonally adjusted
Source: State Secretariat for Economic Affairs (SECO), Credit Suisse

... and the Recovery of Exports Should Continue...

The prerequisites for a further recovery of the export economy are good. For one thing, the positive economic trend in the purchasing countries is providing tailwind: Our Export Barometer that measures this trend lies well above the growth threshold (see figure below).

Furthermore, less and less headwind is coming from the overvaluation of the franc against the euro. The hope that the depreciation of the euro has been stopped appears to us to be realistic. Nevertheless, the Swiss National Bank (SNB) tends to refrain from currency market interventions whenever the Swiss franc appreciates as a result of improved Swiss growth expectations. It primarily combats appreciation pressure that stems from political uncertainty. However, the latter should decrease further in the euro zone as the economic recovery gains ground.

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Export Barometer Pointing to Growth

In standard deviations
Source: Bloomberg, Datastream, PMIPremium, Credit Suisse

... While the Domestic Economy Slowly Picks Up

Although the domestic economy remains sound, its growth is only accelerating slowly. Consumer sentiment is only brightening hesitantly due to the sluggish improvement of the labor market situation, which is the most important determinant of sentiment. Furthermore, the era of rising purchasing power on the back of falling prices is over. Immigration is continuing to support consumption growth but the growth contribution is getting smaller.

Little acceleration is also to be expected in corporate investment: While the favorable financing conditions and constant urge to rationalize speak in favor of a sharper increase, the ongoing difficult revenue situation is limiting potential. The net operating surplus – an approximation of profits – still lies at the low level of 2009.