Brighter economic outlook

Bern, 19.09.2013 - Economic forecasts from the Federal Government’s Expert Group - Autumn 2013*. Thanks to a continuing strong domestic economy, the Swiss economy is likely to achieve a pleasing 1.8% growth during 2013. By contrast, a dramatic recovery in the export industry, which showed itself to be relatively crisis-resistant during the recent years, is still slow in coming. However, improvement is expected, as the international economy, in particular the recovery which is beginning to take root in the Euro region, is likely to provide a positive impetus. Accordingly, the Expert Group expects GDP in 2014 to achieve a broadly-based and further enhanced growth of 2.3%. As the economy firms up there is also likely to be a gradual downward reversal in the unemployment trend next year.

International economy
The global economy is generally experiencing a moderate recovery, the pace of which is likely to pick up next year. However, the economic dynamics vary across regions: whilst the economic situation and prospects in the OECD countries have improved for the most part over recent months, numerous emerging countries are facing higher uncertainty.

There are indications of brighter trends particularly in the crisis-ridden Euro zone. For example, the debt crisis on the financial markets has continued to remain under control over recent months and the economic downturn appears to have bottomed out. In the 2nd quarter 2013 growth in GDP returned to positive territory for the first time after six negative quarters and the sentiment indicators, which have continued to rise over the summer, point to a continuation of the recovery trend. Whilst the pace of recovery is continuing in the core countries, Germany in particular, there are signs at least of an end to the recession in the Euro zone periphery countries of Southern Europe. However, the recovery in these countries is likely to continue being held back by the austerity policies and troubled banks recovery and accordingly only make slow progress. The Euro region is therefore expecting overall a modest positive boost to growth (2013 -0.4%, 2014 +1.2%). In the USA the economic recovery in the current year is making good progress despite the forced consolidation of the state budget and the employment market is showing a steady improvement. Since the dampening effects on the economy resulting from the fiscal policy will gradually diminish, the growth in GDP could accelerate from just under 2% in 2013 to around 3% in 2014. In Japan the economy has picked up significantly thanks to the highly expansive monetary policy and government economic programmes.The positive trend is likely to continue for the time being.

By contrast, economic activity in many emerging countries remains below expectations; the hoped-for pickup in growth following the slowdown last year, has so far not materialised. Although the fears of a downturn in China have abated because the latest export figures and other economic indicators were positive and indicate a stabilization of the economy. Other emerging countries, however, have come under increased pressure on the financial markets over recent months. Expectations about an imminent end to the bond buying programme (Quantitative Easing 3) by the US Federal Bank led to a sudden capital outflow from the emerging countries which is driving up interest rates and having a negative impact on financing terms. Countries which are particularly vulnerable are those with weak macro-economic indicators (poor economic data and/or high current account deficits), these currently include Brazil, India, Indonesia, South Africa and Turkey. Overall, the development of the economies in the emerging countries is likely to initially remain restrained - although the growth rates are still well above those of the industrialised nations - and will only slowly regain impetus.

Economic forecast for Switzerland
In Switzerland the positive growth in GDP is continuing in the 2nd quarter 2013 (+0.5% over the previous quarter). Against the background of challenging international economic conditions in 2013, the Swiss economy is therefore proving once again resilient - as it has already done over the past years. A key role in this is being played by the continuing robust domestic economy which is being helped by the steady level of immigration, low interest rates and absence of inflation.

The difference in the dynamic between the vibrant domestic and subdued export demand is also remarkable in the course of the year 2013 to-date. Private consumption in particular has been providing strong support for the economy for several quarters. The picture in investment in construction is also positive even though capacity constraints and the effects of the weather have temporarily put a break on the upward dynamic over recent quarters. On the other side, goods exports are continuing to suffer from the subdued sales markets - the recession in the EU which continued to the spring, the slowdown in the emerging countries - as well as from the continuing problem of price competitiveness for Swiss exporters despite the success of the exchange rate floor against the Euro**. Consequently, there is still a key element missing for a broadly-based upturn. The capacity utilization below average in the industry sector is likely to be one of the key reasons for a sluggish recovery by now in investment in machinery and equipment.

There are however increasing signs of an early positive upswing in exports. A recovery in tourism exports has already begun (number of overnight stays by visitors from abroad). However even in industry the subdued mood over the Summer has brightened somewhat, as shown by the rise in the Purchase Managers Index (PMI) as well as the more confident expectations in the machine, metal and electronics industry (according to a Swissmem survey). Providing the slow recovery in the global economy continues as expected, particularly the economy of the Euro region, the beginning of a recovery in Swiss exports during the second half of the year is expected, gaining impetus next year.

Overall, the Expert Group is revising its GDP growth forecast for 2013 upwards from the previous 1.4% to the new figure of 1.8%. The key factor here is the stronger dynamic of the domestic economy. For 2014 growth strengthening further to 2.3% (previously 2.1%) is projected due to improved prospects for exports, together with continuing, robust domestic demand.

The prevailing divergence between the domestic and export economy to date is also reflected in the labour market. The level of employment in the first half-year 2013 continued to show a moderate rise, with growth in jobs in the services sector and the construction industry being offset by a continuing decline in the level of employment in industry. Because the growth in the level of employment was insufficient to absorb the rising supply of work, the level of unemployment has been showing a steady, slight rise for around two years. However, there are currently initial signs that the rise in the (seasonally adjusted) unemployment could come to an end over the coming months. In the year ahead the stronger economy is then likely to produce a gradual reduction in the unemployment figures during the course of the year. The Expert Group anticipates annual average unemployment levels of 3.2% for 2013 and 2014 respectively, slightly below the previous forecast (3.3% respectively for both years).

Economic risks
The international environment has improved slightly for the Swiss economy during the course of 2013. For the first time since several years upward risks are more likely to occur. In a positive scenario the latest positive surprising news in the Euro region - a quicker recovery underway - could continue and/or the emerging countries might quickly overcome their current economic dip. Stronger demand from key Swiss sales markets would give the export industry an additional impetus and could further accelerate the recovery in the Swiss economy.

However, despite the increased confidence, negative risks to the global economy which still remain should not be ignored. For example, the debt crisis in the Euro region has still not been resolved and there is the possibility of setbacks in the structural economic reforms. There is also the risk that the normalization of the highly expansive monetary policy planned for the years ahead might not proceed smoothly but instead - as already seen in recent months - could lead to turbulences on the international financial markets (e.g. sharp rise in interest rates, sudden capital outflows from the emerging countries). This could in turn have an adverse effect on the recovery in the global economy.

*Die 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 2013. The current edition of "Economic Trends" (Konjunkturtendenzen/Tendances conjoncturelles), 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" (www.dievolkswirtschaft.ch). It is also available free of charge on the Internet: (http://www.seco.admin.ch/themen/00374/00375/00381/index.html?lang=de).

**Furthermore, the development of exports and imports in goods in the year 2013 is affected by the modification in the systematic of electricity exports from January 2013. This modification reduces the rates of change both for exports as well as imports by an annual average of approximately one percentage point for 2013. However, there are no effects on the trade balance and therefore on growth in GDP.

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