Swiss economy performing well in a difficult and risky environment - outlook subject to significant risks

Bern, 12.06.2012 - Economic forecasts from the Federal Government’s Expert Group – summer 2012*. Thanks to robust domestic economic activity and a relatively resistant export industry, the Swiss economy is performing better than had been anticipated in view of the strong Swiss franc and an economic recession in many EU countries. However, for various sectors and many export companies the situation remains tight, with strong downwards pressure on margins. Thanks to the good economic performance over the second half of the year the Federal Government’s Expert Group is raising its growth forecast for 2012 from the previous 0.8% to the new figure of 1.4%. This adjustment cannot detract from the fact that the economic environment in Europe has recently deteriorated further. With growth in GDP of 1.5% for 2013 (1,8% were forecasted in March), the economic dynamic is expected to remain relatively weak. Preventing an escalation of the sovereign debt crisis in the Euro region is the key prerequisite for a continuation of the positive economic development.

International economy
The current weak point in the global economy is the Euro region where hopes of a gradual stabilization which began to emerge in the spring have once again dissipated over recent weeks. The uncertainty surrounding the political situation in Greece as well as the serious banking problems in Spain have triggered a further heightening of the sovereign debt crisis on the financial markets; this is having a serious detrimental impact on the economic climate throughout the Euro region. With regard to the continued development the Federal Government’s Expert Group is working on the assumption that an uncontrolled spread of the crisis (in particular a chain reaction on the financial markets, infecting banking systems and other countries) can be avoided. However, even if such a crisis is avoided the prospects for the European economies remain very subdued. There is no early end in sight to the recession, particularly for the countries of Southern Europe which are suffering both from falling domestic consumer demand as well as from the tough fiscal policy consolidation measures. Even the robust German economy will be unable to fully escape these difficult conditions un-scathed. It must therefore be assumed that although Germany will remain the engine driving growth in the Euro region, there will be a slowdown in German economic activity.

The economic prospects for Asia and the USA are better for those for the EU, even though these economic regions are not immune to the problems in the Euro region due to trading and finance links. The US economy is showing a moderate pace of recovery and the process of reducing domestic consumer debt is making progress. However, virtually no clear action has been taken to-date on the consolidation of the government finances.

The picture in the emerging countries is generally a positive one. The downturn in economic activity since 2011 has for the most part been gentle and the growth prospects remain intact, particularly for Asia and Latin America. In China, the commencement of a slowdown in
economic activity is desirable from the aspect of economic policy in order to counter signs of overheating, such as sharp rises in real estate prices and a strong rise in lending. It remains to be seen how much the Chinese economy slows and whether the planned switch to more private consumer led growth will succeed.

Economic forecast for Switzerland
The Swiss economy achieved clear positive growth in the 1st quarter 2012 and has come through the winter 2011/2012 in significantly better shape than had been feared. This remarkable resistance to crisis is thanks in considerable part to the continuing robust economic activity on the domestic front. For example, investments in construction and domestic house-hold demand are being helped by the historically low interest rates, falling inflation and a growing population (as a result of the continuous immigration). However, despite the strong Swiss franc and recessionary economic situation in many EU countries, the export industry also continued to perform relatively well, with significant variations in the individual sectors. Whilst exports of clocks, watches and pharmaceuticals (the two categories together account for more than half of the exports of goods) have to-date performed robustly, the weak trends for example in tourism and the mechanical engineering industry are more pronounced. The floor established for the exchange rate against the Euro plays a key role in this context as this has stabilized the currency situation and created some planning security for companies; this has so far had a positive effect on the business situation.

Nevertheless, Switzerland will not escape the difficult environment for the export industry unscathed. The turbulent events on the currency markets since 2010 have forced many export companies to reduce their sale prices to the detriment of margins in order to remain internationally competitive despite the strength of the Swiss franc. This is reducing the cushion for being able to mitigate further negative developments. The situation in the industrial sector is therefore problematical and the latest deterioration in Europe poses a serious risk to the further development.

The Expert Group expects economic development for the remainder of this and the next year to be characterized on the one side by a significantly differing picture between the domestic sectors performing well (construction, consumer-related areas, domestic economy-oriented services) and on the other, by export sectors under increased pressure to adapt. All this with a moderate overall growth in GDP of 1.4% (previously 0.8%) in 2012 and 1.5% (previously 1.8%) in 2013. In this context the upward revision of the forecast for the current year is ex-plained almost entirely by the developments during the end of 2011 and the beginning of 2012 which exceeded expectations and not by a more optimistic assessment of the economic prospects.

The economic resilience of the Swiss economy is also reflected on the labor market which continues to show robust health. The level of employment increased further over the winter and the rate of unemployment has only risen slightly over recent months (increase in the seasonally adjusted unemployment level since autumn 2011, from 3.0% to 3.1% as at end May 2012). Consequently, the latest course of development on the Swiss labor market has been markedly better than that in most European countries (with the exception of Germany) where the level of unemployment is rising sharply. However, according to the assessment by the Expert Group the level of unemployment during the remainder of this year could show a further slight rise, with particularly those areas of the economy suffering from economic or structural problems (such as some areas of the export industry, tourism as well as in the finance sector) possibly seeing further redundancies. This gives yearly average unemployment levels of 3.2% for 2012 and 3.4% for 2013.

Economic risks 
The key economic risk is posed by the Euro debt crisis. The positive growth forecasts for the Swiss economy are significantly dependent upon the assumption that European economic policy is successful in preventing an uncontrolled proliferation of the crisis into a widespread banking and financial crisis. In addition to the political imponderables in Greece which, under certain circumstances, could lead to state bankruptcy and Greece’s departure from the European currency union, the focus is currently also on Spain’s banking problems. Many Spanish banks are continuing to suffer significantly from the consequences of the real estate crisis.

The risk of a widespread European banking crisis is difficult to assess but could have potentially significant, negative effects on economic activity. If this were to happen the entire Euro region could experience a severe recession, with clear, negative ‘knock-on’ effects for the rest of the world. The very fact that an escalation of the debt crisis could cause potentially huge and uncontrollable damage appears to make the likelihood of such a development relatively limited as the economic policy in the EU intends to use all its resources to prevent the crisis spreading out of control.

*  The Federal Government’s Expert Group on Economic Forecasts publishes quarterly for the Swiss economy. This media release comments on the current forecast of June 2012. The current edition of "Konjunkturtendenzen", a quarterly publication from the SECO, integrates these forecasts and goes into more detail on other aspects of the current economic devel-opment. This publication appears in printed form as an appendix to the February, April, July and October issues of the magazine "Die Volkswirtschaft" ( They are also available for downloading as a PDF file free of charge from the Internet under the following address ://

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