Swiss economy: Patchy growth forecast for 2020

Swiss economy unlikely to gain much traction in 2020 either 

At 1.4%, growth in the Swiss economy in 2020 is likely to exceed the previous year's figure – partly due to Switzerland's stable labor market. The positive economic forecast is nevertheless influenced by major sporting events, which are overstating the situation.

Swiss economy set to grow more strongly in 2020 than in previous year

The Swiss economy grew surprisingly strongly in the third quarter of 2019, at a rate of 0.4% compared with the previous three-month period. Nevertheless, growth was unevenly distributed and the positive result was almost exclusively due to the booming pharmaceuticals industry as well as record electricity exports. In all other respects, the Swiss economy expanded at a lackluster rate; meanwhile, the capital goods industry actually shrank. Against this backdrop, the forecast growth in gross domestic product (GDP) for full-year 2019 has had to be cut to 0.9%.

The situation appears slightly better as far as 2020 is concerned, with the GDP growth rate for the year as a whole likely to climb to 1.4%. Next year's outlook for the capital goods industry is similarly positive, with its position likely to stabilize. The Purchasing Managers Index (PMI) for Swiss industry is now only just below the growth threshold. Moreover, there are signs of a stabilization in foreign demand. 

Industrial exports likely to benefit from growth in Swiss economy

Industrial exports likely to benefit from growth in Swiss economy

Source: Swiss Federal Customs Administration, Credit Suisse

Swiss labor market is solid 

Growth in the Swiss economy continues to be driven mainly by private consumption. Fact is, employees remains fairly optimistic about their job security – and with good reason, because the labor market situation in Switzerland is still comparatively robust.

This is illustrated by a 1.1% year-on-year rise in employment in the third quarter of 2019 to a record level. At the same time, around 10% more job vacancies were registered than in the previous year. However, the growth is almost exclusively confined to the service sector. By contrast, prospects for industrial employment are rather subdued. 

Swiss labor market appears solid

Swiss labor market appears solid 

Number of vacant positions and employment in full-time equivalents, year-on-year change in % 

Economic forecast for 2020 is influenced by major sporting events 

Inflation remains very low and is likely to fall to 0.3% in 2020. Indeed the healthcare and communications sectors could even see a fall in prices. On the other hand, modest price increases are expected in transportation, leisure, and culture, as well as education.

The mildly positive overall outlook for the Swiss economy should nevertheless be treated with caution. Fact is, the acceleration in underlying economic growth next year is likely to be weaker than suggested by the forecast.

The reason lies in the Summer Olympics and European Football Championship, both of which will be taking place in 2020. As the IOC and UEFA – the sports federations responsible for these events – are domiciled in Switzerland, their licensing revenues are included in Swiss GDP data. Although the two major events are together likely to increase Swiss GDP growth by more than 0.3 percentage points compared with 2019, most of the value created by them is generated outside Switzerland. Therefore, there is only a marginal effect on the Swiss economy.