Growth is expected to slightly accelerate and should feed through into lower unemployment

Bern, 18.03.2014 - Economic forecasts from the Federal Government’s Expert Group – Spring 2014* - The Federal Government’s Expert Group reaffirms its previous assessment (of December 2013) that the economic upturn in Switzerland is likely to further strengthen in 2014 and 2015. After reporting a solid 2% in 2013, the Expert Group expects growth in GDP to accelerate further to 2.2% in 2014 and to 2.7% in 2015. In the wake of an improving global economy, exports are also likely to provide an increasingly positive impetus, following years of rather subdued activity. The domestic economy is expected to remain robust. Given the brighter economic outlook, the labour market is expected to show a gradual improvement (fall in the unemployment rate from 3.2% in 2013 to 3.1% in 2014 and 2.8% in 2015).

International economy
The international economy appears to gradually stabilize, even though the overall picture remains uneven. In most of the industrialised countries, during the first part of 2014 a continuation of the positive trends of the second half of 2013 can be observed. Economic growth further gained momentum particularly in the USA. Thanks to stronger consumer and investment demand, as well as the easing of the dampening effects of fiscal policy, growth in the US is likely to remain solid in 2014 and 2015.

The economic situation in the Euro zone is also showing some signs of improvement. Although overall economic growth should remain weak, positive evolutions have been reported for the last quarters. The severe recession in the peripheral countries suffering from the debt crisis has also eased. Some of the latter countries will continue to struggle for some time to overcome the effects of the recession on their labour market in particular. In addition, the on-going fiscal consolidation and the poorly capitalised banks will continue to weigh down their recovery. Nevertheless the economic recovery in the Euro area is likely to further strengthen in 2015, albeit at a moderate pace (anticipated growth in GDP for 2014 +1%, 2015 +1.5%).

In contrast to the improving trends in the industrialized economies, the economy in many emerging markets is still facing increased uncertainty. However, as the change in monetary policy got under way in the United States, there was another sudden outflow of capital at the beginning of 2014. In order to stabilize the situation and to counter the risk of a strong currency depreciation, various countries were forced to introduce a more restrictive monetary policy, which in turn had an additional dampening effect on their economies; as a result, growth in the coming quarters should remain moderate on average.

Economic forecast for Switzerland
By comparison with other European countries, the Swiss economy posted again a respectable 2% growth for the full year 2013 even though the result for the 4th quarter was rather moderate (+0.2% compared with the previous quarter). At the end of 2013 the development within the economy continued to diverge between a dynamic domestic economy (construction, many service sectors) and subdued export-orientated sectors (e.g. industry in particular but also financial services). However, the increasingly positive impetus from the United States and the EU support expectations of a more positive development of Swiss exports, as also indicated by different surveys. Growth expectations are also higher for exports of services (tourism and other services) this year and the next. Consequently, following several years of sluggish development, the trade balance in 2014 and 2015 is likely to deliver positive growth contributions to GDP.

The domestic economy, which was the main contributor to growth in recent years, is likely to solid. However, there are emerging signs of some shifts between individual components. The brighter outlook for exports and improved capacity utilisation levels represent two preZequisites for a more pronounced increase in business investments, which have been weak until now. By contrast, following a strong 2013 (3.8% increase), investment in construction is likely to have passed its peak and should face slightly slower growth in 2014 and 2015. In view of the rising population and continuing favourable financing conditions, the environment for the construction sector basically remains friendly. The strong increase in private consumption is also likely to continue, albeit at a slightly slower rate compared to 2013.

Overall, there is virtually no change to the Expert Group’s assessment contained in the last forecast (December 2013): the economic upturn in Switzerland is likely to gain in strength and to broaden in 2014 and 2015 – with positive contributions both from exports and the domestic economy. After reporting a rise of +2% in 2013 the forecast is for growth in GDP of 2.2% in 2014 (previous forecast +2.3%), accelerating to 2.7% in 2015 (unchanged).

The outlook on the labour market is noticeably brighter. For the first time again a rise in employment levels in industry can be observed following a period of layoffs. The slight rise in unemployment came to a halt towards the end of 2013 and the (seasonal adjusted) unemployment rate decreased in the first two months of 2014. In view of the positive outlook for the economy, the recovery in the labour market is likely to continue and strengthen, which in turn is reflected in the forecast of the unemployment rate from 3.2% in 2013 to 3.1% 2014 and 2.8% in 2015 (forecasts unchanged).

Economic risks
While the fragile state of the global economy has been the major risk concern for the Swiss economy over the recent past, the focus has switched now to some uncertainties about the future of the relations with the EU, following the acceptance of the mass immigration initiative. It remains difficult to guess how this initiative will affect companies’ ability in Switzerland to recruit foreign workers in the future; uncertainty has risen as well for the future of the bilateral agreement between Switzerland and the EU. It is virtually impossible at present to assess the long-term economic consequences over the years ahead. These consequences are heavily dependent upon the specific implementation of the initiative (for example the structure of a quota system) and on quality of the future relationship with the EU. One potential risk for short-term economic development lies in the increased uncertainty for planning, which could have a dampening effect on business investments (postponement of investment decisions) and could consequently be detrimental to GDP growth and employment. However, uncertainty for planning may be offset by the some counteracting positive evolutions (the pick-up in the global economy, an increased capacity utilisation and low interest rates). Business surveys since the adoption of the initiative have so far not showed any visible signs of a negative impact on sentiment; instead surveys results have continued to improve (e.g. Purchasing Managers’ Index and KOF Barometer for the month of February). The further performance of these indicators will be closely monitored over the coming months.

Some global economic risks remain. The economic upturn in the Euro zone is still fragile. In particular, a further needed fiscal consolidation in combination with high unemployment will remain challenging. Any setbacks in the economic reforms may increase uncertainty on the financial markets, which in the worst case could lead to a reoccurrence of the debt crisis. Furthermore, the emerging markets are potentially vulnerable to further capital outflows that might occur with the continuation of the normalisation of the monetary policy in particular in the USA ("Tapering"). Finally, the current conflict in Russia/Ukraine represents a geopolitical factor (e.g. in the event of military escalation of the conflict which could affect international energy supplies). On the positive side, the overall strengthening of the global economy over recent quarters does offer potential for higher than expected external demand in some sectors and countries.

*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 March 2014. The current edition of "Economic Trends" (Konjunkturtendenzen/Tendances conjoncturelles), a quarterly publication from the SECO, available in German and French, 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).

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