Consumer spending supports economy and strengthens economic growth

Consumer spending the engine of Swiss economic growth

The Swiss economy held up relatively well in the second quarter of 2019. This was above all attributable to domestic consumer spending and strong consumer goods exports, which acted as a driver of the economy. For manufacturers, however, the situation remains tough even against this backdrop of economic growth.

Economic growth slows

The Swiss economy generated growth in the second quarter of the year too, namely 0.3 percent compared to the prior-year quarter. However, growth was weaker than in the first three months of 2019. What's more, gross domestic product (GDP) was only slightly higher than its level a year earlier. The economic outlook appears similarly mediocre, particularly for large parts of the manufacturing sector.

A similar picture is painted by the purchasing managers index (PMI) produced by Credit Suisse together with This index, which has proved a reliable leading indicator of economic development, has now been below the threshold signifying growth for almost six months now. At the same time, the industrial economies of the countries to which Switzerland exports its goods are weaker than at any time in the last seven years. As an additional negative factor, the further appreciation of the franc against the euro makes life more difficult for manufacturers.

No reason to fear economic slump

Export volumes in the machinery, electrical engineering, and metalworking industries (MEM industries) have been declining for almost a year now, while the exports of the watchmaking industry are stagnating. Overall, however, the Swiss export economy appears to be in good shape. After all, some two-thirds of all Swiss exports are made up of consumer goods. These products are benefiting from robust growth in global consumer spending. For example, the exports of the pharma industry have been rising continuously.

By contrast, the proportion of total exports accounted for by investment goods as well as commodities and semi-finished products has been declining steadily, while energy accounts for only a small share. In other words, an overall slump in Swiss export volumes would require a significant deterioration of global consumer sentiment – a scenario that does not appear very likely as things stand.


Consumer goods exports supporting Swiss economy

From 2002: includes electricity, returned goods and contract processing
From 2012: includes gold and silver bars, as well as coins

Source: Swiss Federal Customs Administration, Credit Suisse

Strong labor market boosts consumer spending

However, the outlook for domestic consumer spending appears bright at the moment. The rather pessimistic attitudes apparent in recent consumer sentiment surveys relate first and foremost to developments in the financial markets. However, experience shows that the confidence expressed by the Swiss in their own job security is a much greater determinant of consumer spending decisions than the development of financial markets. And at the moment, the labor market situation appears relatively healthy.

The unemployment rate is lower than at any point in the last ten years, whie employment growth has only weakened slightly recently. Only in the manufacturing sector is there a risk of a longer-lasting period of headcount reduction that could weigh on consumer sentiment. That said, a general deterioration of the Swiss economy appears unlikely even if this risk were to materialize. Such a scenario would require a significant decline in industrial activity, of which there is no evidence right now.


Consumer spending remains at a healthy level

* of Swiss guests
Heat map: green = above average, red = below average

Source: Datastream, GfK, Credit Suisse

Consumer spending supports Swiss economic growth

The robust labor market situation is another key reason why Swiss consumer spending is likely to continue to rise until the end of 2020. Other factors contributing to growth in consumer spending include the rising cost of healthcare and living, as well as population growth and solid purchasing power in Switzerland. Furthermore, we are also likely to see an acceleration of construction investment in 2020.

A full-blown recession encompassing the services sector too is therefore a fairly unlikely scenario, despite the weakness evident in numerous areas of manufacturing. Indeed, if there is any improvement in the global inventory cycle or in the trade dispute between the US and China by the end of 2020, a slight acceleration of Swiss economic growth is a distinct possibility. Swiss GDP can be expected to continue to grow modestly for the next two years. For 2019 as a whole we are expecting growth of 1.1 percent, with a slight increase to 1.4 percent in 2020.