While the US economy has accelerated again slightly following the dip seen in mid-2011, the opposite is occurring in Europe. Most significantly, economic momentum in Germany – Switzerland's key trading partner – has slowed. At the same time, the partial spillover of the debt crisis to Italy has brought increased volatility on the financial markets, growing tensions on the credit and interbank markets, and falling confidence among households and businesses.

The revised forecast is based on the assumption that budgetary consolidation in the heavily indebted countries, support measures from the European Central Bank (ECB) and International Monetary Fund (IMF), and a drive to implement institutional reforms will prevent the euro zone from sliding into recession. A significant cooling of European growth is no longer avoidable, however. This is likely to be compounded by a slight slowdown in the emerging markets due to the recent implementation of measures designed to curb economic growth, while only a small pick-up in growth can be expected in the US owing to the deadlock over financial policy.

Slower Growth in Europe = Slower Growth in Switzerland
Softer demand from abroad implies that Swiss exports will come to a virtual standstill in 2012 despite the slightly weaker Swiss franc. According to the Credit Suisse forecast, the volume of exports is likely to grow by only 1% in the coming year. The Swiss National Bank (SNB) is playing a key role in removing some of the uncertainty on exchange rates through its creation of a euro/Swiss franc floor.

Capital spending on machinery and equipment is likely to show a retrenchment in 2012 (Credit Suisse forecast: -1.5%). The recent rise in volatility and uncertainty, together with the persistently tight margin situation, is putting a major squeeze on investment activity. Accordingly, the Purchasing Managers' Index (PMI) (which Credit Suisse compiles in collaboration with procure.ch, the Swiss Association for Purchasing and Supply Management) suggests that companies are growing more skeptical about prospects for ongoing development: Since the late summer of 2011, they have exercised extreme restraint regarding new hires, while scaling down their inventories.

Domestic Economy Remains Solid, Though the Pace Has Slowed
Activity in the construction sector (1.5%) and private consumption (1.1%) should continue to exert a stabilizing effect in 2012. This is due to structural as well as economic factors. Switzerland's public finances and companies do not suffer from excess debt, and there are very few home-grown problems that might curb economic progress. On the contrary, interest rates in Switzerland will remain low until at least the end of 2012. In addition, inflation is not an issue in Switzerland at present; pressure on consumer prices is holding up, so purchasing power is safeguarded (inflation in 2012: 0.4%). Finally, immigration is likely to remain strong, meaning an important driver of the growth in consumption will remain in place. By contrast, the constant talk of crisis, together with a deterioration in the labor market situation (unemployment rate in 2012: 3.3%), is increasingly impacting sentiment, and poses certain constraints for the growth in consumption.