Slowdown in economic growth

Bern, 18.09.2012 - Economic forecasts from the Federal Government’s Expert Group - autumn 2012*. The international economic slowdown has also reached Switzerland. In view of the weak global economic conditions the Federal Government’s Expert Group expects dampened economic activity to continue over the coming quarters. Furthermore, a small rise in unemployment is expected. However, the Group does not foresee a marked recession in Switzerland thanks to the robust domestic economy and the exchange rate floor against the Euro. The latter created stability for the export industry. GDP for 2012 is forecast to grow by 1.0%, with a slight pickup to 1.4% for 2013, contingent upon there being a recovery in the global economy. The latest decisions taken by the ECB have reduced the risks of a further escalation in the sovereign debt crisis within the Euro region, however these risks still remain.

International economy
More signs of a weakening global economy have emerged over recent months. The sovereign debt crisis is hampering economic activities to an increasing extent, particularly in the Euro region. Whilst Italy, Spain and other countries remain in deep recession, those countries of the Euro region which have been reporting stronger growth, primarily Germany, are now also being visibly suffering under the crisis. The weakening of the impetus provided by global trade is leaving clear signs of a slowdown in many countries, including Asian countries.

The economic prospects for the next year depend significantly upon the further development of the sovereign debt crisis in the Euro region and the resultant consequences. The latest decision by the European Central Bank (ECB) to perform Outright Monetary Transactions (OMTs) is likely to have reduced the risk of further escalation. If necessary, an unlimited quantity of government bonds issued by the crisis countries will be bought on the secondary market in order to reduce their interest costs. This decision signals a clear commitment to use all available resources to stem the crisis. However, even if this brings certain stability to the financial markets, it is likely that the ability of the Euro region to escape the recession will be a challenging process. The tough measures aimed at achieving fiscal policy consolidation, together with the processes of adaptation in the private sector, particularly in the Southern European countries, are continuing to have a dampening effect.

It is expected that the regions outside Europe will manage to overcome their economic downturn next year. The accumulating signs of weakness from China are causing concern that what has so far been the most stable pillar supporting the fragile global economy could now be crumbling. However, the fact that Chinese politicians have the will and financial resources to stabilise the banks, the property market and the economy suggests there will be no hard landing in China. The moderate economic expansion in the USA seems to continue as the slowdown in industry is being offset by the on-going recovery in the crisis hit construction and property sector. Nevertheless, the Federal Reserve Open Market Committee decided to support a stronger economic recovery by purchasing agency mortgage-backed securities and to keep interest rates low until 2015. These measures are intended to foster economic growth and improve labour market conditions.

Economic forecast for Switzerland
The slowdown in international economic activity has also reached Switzerland. Following a relatively good 1st quarter 2012, GDP growth weakened in the 2nd quarter. The development of the economy is characterised by significant divergences between domestic sectors which are still performing relatively well (consumer-related areas, domestic economy-orientated services) and the export sectors (industry and tourism) which are under increased pressure to adapt. Key support for the domestic economy is provided by the historically low interest rates, falling consumer prices (with a positive impact on real household incomes) and the high immigration.

In contrast, export prospects currently remain under pressure, not least since the weakness of the international economy has now also reached previously robust markets such as Germany and Asia. Against this background it is all the more important that the currency situation has eased slightly thanks to the exchange rate floor against the Euro which was introduced a year ago by the SNB. The Swiss franc has not appreciated any further against the weakening Euro and in fact has fallen against other currencies such as the US dollar as well as numerous Asian currencies. The exchange rate floor is therefore making an important contribution towards stabilising the framework conditions for the export industry and keeping it profitable.

The Expert Group generally expects the Swiss economy to only report modest growth over the coming quarters. However, it does not anticipate a recession (sharp fall in GDP over several quarters) thanks to the robust domestic economy and the stability created for the
export industry by the exchange rate floor against the Euro. As expected, the latest economic surveys for industry in particular reveal a subdued mood but not a critical deterioration.

For the year 2012 as a whole the Expert Group anticipates a moderate rise in GDP of 1.0% (previous forecast 1.4%). As such, the Swiss economy remains in better shape than other European countries, despite the unmistakable weakening. The slight downward adjustment in the forecast compared with the June figure is partially attributable to the continuing unfa-vourable assessment of the international economic environment. The latest revision of the Production Account is another contributory factor; according to the revised data, growth for the beginning of 2012 was lower than had previously been reported, leading to a lower average for the year 2012. The assessment for 2013 remains virtually unchanged: providing that the economic and financial situation in the Euro region shows a gradual stabilisation the prospects for the export industry are likely to become brighter and the Swiss economy should accelerate again, with an annual growth forecast of 1.4% (previously 1.5%).

As had been expected, the slowdown in economic activity is also slowly being felt on the labour market. Unemployment in the first eight months of this year showed a slight rising trend; the seasonally adjusted unemployment level has increased since the beginning of the year from 2.8 to 2.9% at the end of August . In view of the current modest expectations for economic activity, unemployment is initially likely to further increase before stabilising during the course of next year. Particularly, areas of the economy suffering from economic or structural problems (such as in parts of the export industry, tourism as well as in the finance sector) are affected. The Expert Group forecasts annual average unemployment levels of 2.9% for 2012 and 3.3% for 2013**.

Economic risks
The international economy remains fragile and surrounded by uncertainty. The latest decision by the ECB is likely to have reduced the risk of a further escalation in the sovereign debt crisis in the Euro region, the dominant feature of the markets over the past months. Nevertheless, it is still too early to state that the Euro crisis has been resolved until there is any clear success with the reforms in the crisis countries, leading to greater stability in government finances and improved economic competitiveness, the crisis will remain and the risk of further losses of confidence and turbulences on the financial markets will not have been eliminated.

The recent signs that the weakness in economic activity is spreading worldwide form another economic risk. In view of the high degree of integration of the global economy through trade, there could be a more significant slowdown in global trade than has been anticipated; past experience shows that this would have a marked impact particularly on the export-driven Asian economies. If contrary as expected, there would be a pronounced economic downturn instead of a brief slowdown in Asia; the weakening momentum from this region would have an additional detrimental impact on the Swiss export industry.         

* The Federal Government’s Expert Group on Economic Forecasts publishes forecasts for the Swiss economy on a quarterly basis. This media release comments on the current forecast of September 2012. The current edition of "Economic Trends", a quarterly publication from the SECO, integrates these forecasts and goes into more detail on other aspects of the current economic development. This publication appears in printed form as an appendix to the February, April, July and October issues of the magazine "Die Volkswirtschaft" ( It is also available on the internet: (

** In July 2012 the basis for the unemployment rate was adjusted to the size of the working population in accordance with the Swiss Federal Population Census 2010 of the BFS. As a result the unemployment rate is theoretically approx. 0.3 percentage points lower than prior to the revision. The unemployment rate for 2011 therefore fell from 3.1% according to the old data basis, to 2.8% in accordance with the new data basis. This difference has also to be taken into account when comparing the current forecast levels for 2012 and 2013 with those in the June forecast.

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