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Swiss Economy – Year(s) of Stagnation

Thanks to the robust situation of the global economy, Switzerland should be able to avoid a recession despite the franc shock. However, strong growth momentum is not to be expected, even in 2016.

A glance in the rear mirror of the economy reveals a pleasing picture: The Swiss economy grew by 2 percent in 2014 and growth even accelerated towards the end of the year. Furthermore, the growth was more broadly based than in the preceding years – although the growth of the domestic economy slowed down further, the export economy picked up more strongly.

Franc Shock Dampening Outlook…

The abandonment of the EUR/CHF minimum exchange rate and the appreciation of the franc that followed this caused an immediate deterioration of the outlook. The fear of recession has returned. Economic momentum is indeed set to ground to a halt or even be negative in some quarters. However, the annual average in 2015 should be above that of the previous year; we expect growth of 0.8 percent. This is due to the robust situation prevailing prior to the appreciation shock: Technically there is a 'statistical overhang' from the previous year of around 0.8 percentage points. Figuratively speaking a continuation of the real economic output of the second half of 2014 would already suffice for the value creation level in 2015 to exceed that of 2014.

… But Our Main Scenario Is Not a Deep Recession

We consider a deep recession to be unlikely. For one thing, the 'super cycle' that underlies consumption and consists of immigration, the real estate boom, low inflation and low interest rates continues to turn, even if more slowly than before. Secondly, the recovery in the Eurozone and solid growth in the US are alleviating the negative effects brought about by the loss of price competitiveness of the export economy. Thirdly, automatic stabilizers, specifically unemployment insurance (keyword: "shorttime work") are forming an economic safety net and the Swiss National Bank stands ready on the sidelines if the franc should appreciate too much.

Only Weak Economic Growth in 2016

The export economy is set to suffer for some time to come from the overvaluation of the franc.  For this reason there is no significant growth momentum to be expected from foreign trade even in the coming year. At the same time the domestic economy should continue to lose momentum – almost all drivers are likely to forego more impetus. The outlook for 2016 is therefore gloomy: We expect below-average economic growth of 1.2 percent.