Swiss economy growing at a slower rate

Swiss economy growing at a slower rate

The Swiss economy is set to grow 1.7 percent in 2019, a rate lower than that of 2018 . The main driver will be private consumption. In contrast, Swiss exports and investment growth are leveling off.

Swiss GDP is expected to grow again

Switzerland's gross domestic product (GDP) contracted 0.2 percent in Q3 2018, after expanding vigorously for the previous six quarters. However, the correction is largely attributable to temporary factors: the hot 2018 summer, for example, resulted in lower retail sales and less power generation in hydroelectric plants.

Moreover, Switzerland was not left unscathed by the temporary weakness in the German auto industry. After all, exports to the "car-heavy" German states of Bavaria and Baden-Württemberg are about twice as high as exports to China. Accordingly, GDP is still projected to grow 2.7 percent in 2018.


Retail trade suffers from heat in Q3 2018

Heat map: green = above average, red = below average
Source: Datastream, BFS, GfK, Credit Suisse

Swiss exports weaken further

Foreign trade is likely to continue to decline in 2019. Export growth has already weakened in the cyclical sectors, while pharmaceutical exports provided support. However, according to the Swiss Purchasing Managers Index (PMI), weaker export momentum should have only limited consequences for industrials.

This leading indicator recently stabilized at a level that is above the average. Consequently, capital spending on machinery and equipment should continue to grow, but at a slower rate. As for construction investments, weaker growth is also expected because the oversupply on the market for rental apartments is rising, while the demand for new construction is falling.


Cyclical sectors contribute less to export growth

Nominal export growth, in %, and contribution by sector, in percentage points, in Switzerland (moving 3-month average, year-on-year)
Source: Swiss Federal Customs Administration, Credit Suisse

Weaker Swiss economy despite consumer growth

In contrast, growth in private consumption is poised to accelerate in the coming year. Immigration has stabilized at a lower level, and therefore we do not expect any additional impetus from what has been the biggest growth driver to date. However, the generally improved labor market conditions and the falling unemployment rate in particular, should have a benign effect on consumer sentiment. Therefore, both factors contribute to robust growth in private consumption.

Rising expenditure on healthcare and the uptick in housing spending – mainly rent and mortgage interest payments – should also boost consumption in the year ahead. The acceleration in private consumption is unlikely to offset the deceleration in other demand components, though. On balance, forecasts indicate lower GDP growth of 1.7 percent for 2019.

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