Economic prospects remain positive despite delay in recovery of exports

Bern, 17.06.2014 - Economic forecasts from the Federal Government’s Expert Group – Summer 2014*. The Swiss economy continued to perform relatively well until the Spring of 2014. However, the robust dynamic of the domestic economy is in contrast with the development of exports which remains sluggish. In view of the rather irregular recovery of the global economy the positive turnaround in exports has still not clearly materialised. The Federal Government’s Expert Group continues however to expect the economic upturn in Switzerland to strengthen further until 2015. Because of the delayed recovery in exports the economic improvement is likely to take slightly longer than anticipated in March. Growth in GDP for 2014 is now expected to be 2% (previous March forecast +2.2%) and should accelerate to 2.6% in 2015 (previous forecast 2.7%). Given the overall positive economic outlook, the recovery in the labour market is likely to gather further pace and the level of unemployment should continue to fall.

International economy
The global economic recovery is progressing but remains on a bumpy course. A large gap is still observed between individual countries. The improvement in the economic situation has been hesitant and irregular so far, particularly in the Euro region where there are still no clear signs of a general upturn over a broad front spreading to the troubled labour markets. Growth in Germany and a number of other countries in the North or Europe is robust and has the additional support of the expansive monetary policy provided by the ECB. The Southern countries of the Euro region, as well as France, are far from showing signs of a similar dynamic. In the peripheral countries of Southern Europe the unfavourable scenario of weak growth, high unemployment and floundering banks has awakened concerns about deflation, in response to which the ECB once again loosened its monetary policy at the beginning of June. The slow economic recovery within the Euro region is likely to continue in 2014 and 2015 (anticipated growth in the
Euro area of +1% in 2014 and +1.5% in  2015).

In contrast, the recovery of the US economy is  more visible and advanced than in the Euro area. The slowdown in growth in the 1st quarter was primarily attributable to the weather conditions (temporary production losses due to the severe winter at the beginning of the year) and should denote only a temporary halt. The expansive monetary stance and the fading out of the fiscal consolidation should help GDP growth in the USA to accelerate further  (to 3% in 2015).

In many emerging markets, economic development has been held back by less favourable financial market conditions (in particular increased capital outflows and higher interest rates). The growth prospects for different emerging economies remain relatively subdued. In Eastern Europe the conflict between Russia/Ukraine increased uncertainty and will have negative consequences on the Russian economy. In China the Government is seeking to curb the excessive growth in credit over the last few years, which has led to bad investments and more default risks for the banking sector. This will put a damper on the economy in the short term but, if successful, these measures could contribute to more sustainable growth in the medium term in China.

Economic forecast for Switzerland
Until spring 2014 the Swiss economy continued to expand at a rather solid pace by international comparison (GDP growth 1st quarter +0.5% compared with the previous quarter). However, economic growth in Switzerland remains divided between a robust domestic demand and subdued export demand. Since 2011, Swiss GDP growth has largely been driven by domestic demand (consumption, investments in construction), whilst the trade balance has provided virtually no positive contributions on average.

A broadly-based recovery in exports across many sectors has still not materialised. Excluding the strong rises in chemical/pharmaceutical exports, other segments such as machine, electronic products and metal exports have so far this year only performed moderately. Although the exports of services were stronger, the contribution of the trade balance of services to the GDP were also modest due to persistent growth of service imports.

The fact that a widespread exports recovery has not occurred yet should not be only attributed to the irregular pace of the global recovery. The reduction in price competitiveness of Swiss exporters over the last years plays certainly a role too. Despite the exchange rate floor against the euro, the Swiss currency  remains at a high level against many other currencies. Furthermore, a lower inflation in trading partners (or prices reduction) increases the difficulties to compensate for the strength of the Swiss currency through lower price increases in Switzerland. The recent decline in export prices over the latest quarters could be an indication that Swiss exporters are still faced with some pressure on their prices and margins.
Under the scenario of an ongoing global recovery, that should further gain strength this year and the next, a gradual pick-up in Swiss export growth is however expected. The Federal Government’s Expert Group continues to forecast a strengthening of economic growth by 2015. But due in particular to the observed delayed in the recovery of the Swiss exports so far, GDP growth should be slightly less rapid this year and the next than predicted a few months ago (in March). The same comments can be made on the basis of the most recent economic surveys results (e.g. the Purchasing Managers’ Index and KOF Economic Barometer, that declined slightly over the last months). GDP growth has been accordingly revised downwards for 2014 from +2.2% in March to 2.0% in June and from 2.7% to 2.6% for the year 2015.

Domestic demand should continue to deliver positive contributions to GDP growth. Investments in construction will further benefit from the low interest rate environment and from the still increasing population. However, some factors should drag on growth in this sector, such as the waning stimulus from civil engineering in the public sector, limitations placed on second homes and the greater uncertainty following the adoption of the initiative “against mass immigration”. In view of rising employment and higher incomes, private consumption is likely to continue to provide a solid support to GDP growth, albeit less than in the recent years. Higher export prospects and improved capacity utilisation should have positive impacts on investments in equipment in 2015.

The improvement in the labour market situation (decline of unemployment) has also been rather sluggish to date. The (seasonally adjusted) unemployment figure reported a minimal decline in the first five months of this year, with the unemployment rate remaining at 3.2%. Given the generally positive economic outlook, the recovery in the labour market is expected to strengthen further over the next quarters. The unemployment rate is therefore forecasted to fall from 3.2% in 2013 to 3.1% in 2014 and to 2.8% in 2015 (forecasts unchanged).

Economic risks
Although the global economy is recovering, the outlook is still fraught with different risks. In particular, the fragile financial system in the Euro area remains a concern. Many banks in the peripheral countries are engaged in cleaning up their balance sheets and taking an appropriate cautious approach to business lending, making the economic recovery in these countries more difficult and increasing the potential threat of deflation. Whether the recent easing in June of monetary policy by the ECB will be able to boost lending by the banks remains to be seen. Likewise, the upcoming bank stress tests in the EU this autumn could increase confidence in the financial institutions or, on the contrary, create new uncertainty (e.g. if the stress tests produce poor results). Additional risks to the global economy are related to the gradual phase-out of the expansionary monetary policy ("tapering") in  the US, with many uncertainties regarding the reactions of the global financial markets and in particular emerging economies. The pace of economic growth in China for 2014 and 2015 remains also uncertain and represents an additional risk affecting our forecasts.

Some internal risks, specific to Switzerland, have also to be mentioned. On the domestic side continued attention must be paid to the risk of excesses and imbalances in the real estate market. Uncertainties linked to the implementation of the Initiative “against mass immigration” and to the future relationships with the EU could also affect negatively investments and indirectly medium term growth prospects.

*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 June 2014. 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 free of charge in PDF format on the Internet: (

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Last modification 14.05.2024

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