Slightly lower growth forecasts, with increased downside risks

Bern, 16.10.2014 - Economic forecasts from the Federal Government’s Expert Group – Autumn 2014* - As a result of the continuing fragility of the global environment, in particular the faltering recovery in the Euro region, the Swiss economy has lost some of its momentum since the beginning of 2014. With respect to the latest signals of lower activity in the Swiss economy, the Expert Group assumes that this evolution should be only temporary and that the pace of the economy is likely to gradually pick up again. However, since the impetus from both domestic demand and exports is slightly weaker than had been previously anticipated, the growth forecasts for 2014 and 2015 are somewhat lower compared to the last forecast (dated June 2014). The Expert Group now projects growth in GDP of 1.8% (previously 2.0%) for the current year, accelerating to 2.4% (previously 2.6%) for 2015**. In view of the slowdown in the economic recovery the reduction in unemployment is likely to be delayed and is only expected to start falling during the course of 2015. In light of the dampened short-term economic outlook for the Euro region, including Germany, the conditions deteriorated compared to the last forecasts in June. Although the economic projections for Switzerland are still quite appealing, the downside risks noticeable increased during the last few months.

International economy
Even six years after the outbreak of the global financial crisis in 2008 the global economic recovery remains fragile and prone to many risks. A sweeping, broadly-based improvement in the international economic situation is still not in sight. An uneven global recovery continues, there is no uniform picture in terms of country and region.

The weak economic indicators over the last few months, particularly in the Euro region (zero growth in the second quarter, falling sentiment indicators, amongst others), suggest that the pace of the economic recovery is still slower than had previously been assumed. The geopolitical tensions (Russia/Ukraine and the Middle East) are apparently also contributing to the uncertainty amongst companies. Even the  robust German economy has recently been showing increased signs of weakness, primarily attributable to subdued exports. However, whilst the German economy is likely to face only a relatively brief economic dip, other Euro zone countries are continuing to suffer from the protracted consequences of the crisis. The debt crisis on the financial markets seems to remain under control thanks to the promise made by the ECB in the summer of 2012 to guarantee the continued survival of the Monetary Union. However, the hardest-hit countries of the southern periphery of the Euro zone, including France, remain stuck in a negative spiral of low growth, high unemployment, weakened banks and fiscal restructuring. To date, indications of positive trends can be seen in only a few countries, most likely in Spain whose economy is showing signs of success on the export front and a recovery in growth thanks to the country having regained its competitiveness. Although the Euro zone as a whole is not expected to fall back into recession, it is anticipated that there will only be a gradual pick-up in growth next year (GDP forecasts for the Euro Zone 2014 + 0.7%, 2015 + 1.2%). This outlook for economic growth is likely to be barely sufficient to bring about a noticeably reduction in unemployment which has increased significantly in many countries over recent years.

The economic outlook for the other regions of the world is very mixed. The economic situation in the USA is relatively friendly, with economic activity moderately on the rise and unemployment gradually falling. If the economic improvement continues there will be an increased likelihood of a first hike in interest rates by the Fed next year. The British economy is expected to continue its vigorous expansion, particularly since the uncertainties surrounding Scotland’s separation from the United Kingdom have now been allayed. However, the upswing in Japan appears less robust than had been expected. The emerging markets are showing distinctive weak trends in Latin America (recession in Brazil and Argentina), as well as in Russia in the wake of the conflict with the Ukraine. In Asia, by contrast, the Chinese economy is evolving relatively robust and India seems to be overcoming the slowdown in growth over recent years.

Economic forecast for Switzerland
The Swiss economy has lost some of its momentum over the last few months (since spring 2014). The second quarter of 2014 showed a slowdown in GDP growth (modest increase of 0.2% compared with the previous quarter) as well as in employment (no further rise of employment level). In view of subdued economic activity in key foreign markets, a significant pick-up in Swiss exports has not yet materialised. In addition, domestic demand, which has made a significant contribution to the robust economic performance over recent years, lost some momentum in the first half of 2014. The gloomier indicators of corporate sentiment are currently pointing to some degree of uncertainty, particularly with regard to the world economy.

The Expert Group assumes that the latest signals of lower activity in the Swiss economy describe a situation that should be just temporary and that the pace of the economy is likely to gradually pick up again. This assessment is based especially on the prospects for the domestic economy, the underlying trend of which remains positive. As such, the factors providing support for economic activity, low interest rates and immigration, are likely to remain in place over the coming year and have a positive impact in particular on investments in construction and private consumption. The conditions for the export industry are also likely to brighten tentatively – providing the global economic recovery strengthens and, in particular, the Euro region is able to avoid falling back into recession.

With regard to the outlook, the Expert Group is keeping to its forecast scenario that the Swiss economy will be supported by continuing robust domestic demand and a slow recovery in exports and is likely to gradually strengthen. However, since the impetus from both domestic demand and exports is slightly weaker than had been previously anticipated, the growth forecast is decreased slightly compared to the last forecast (dated June 2014). The Expert Group now anticipates growth in GDP of 1.8% (previously 2.0%) for the current year 2014, accelerating to 2.4% (previously 2.6%) for 2015**. 

In the wake of the weaker economic growth, the development of the labour market over the course of the year to date has not been as positive as had been expected. The growth in employment slowed and the unemployment rate over the last few months has persisted at 3.2% (seasonally adjusted). With the underlying assumption that economic activity picks up, the outlook for the labour market is rather friendly, as it has been anticipated in the last projections. However, the accelerated growth in employment and a fall in the unemployment rate is now only likely to take place during the course of next year and consequently take longer to materialise than had been previously anticipated. According to the new forecast, the annual average unemployment rate for 2014 will be 3.2% (previous forecast 3.1%), falling slightly in 2015 to 3.1% (previously 2.8%).

Economic risks
The development over recent months has once again confirmed the continuing fragility and vulnerability of the economic recovery in the Euro area to negative shocks (such as e.g. geopolitical crises). The combination of weak economic activity and falling inflation entails the risk of deflationary tendencies, which would in turn affect the economic recovery and increase the debt problems. To counteract such risks, the ECB further loosened its monetary policy in the summer. If the economic recovery should weaken again in the coming quarters in the Euro region, especially in key member countries such as France or Italy, this evolution would have rapidly negative consequences on Switzerland's export sector. Additional global economic risks relate to the international financial markets. If the currently prevailing optimism amongst the market participants about a smooth normalization of monetary policy in the United States, or about the stability of the Euro region were to prove exaggerated, this could imply sudden market corrections with negative consequences for the global economy. Another short-term risks include a worsening of diverse geopolitical tensions.

Consequently, following a period of relative calm, there has been a noticeable increase in the economic risks for Switzerland associated with the Euroregion. There are also domestic and political risks for the Swiss economy. In view of the continuing low interest rate environment, the risk of excesses and imbalances in the real estate market must continue to be monitored, despite the easing trend in the real estate market. The main uncertainty factor however is the future of the relations with the EU following the adoption of the mass immigration initiative which could have a negative impact on corporate investment policy and consequently on the 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 October 2014. The current edition of "Economic Trends" (“Konjunkturtendenzen” available in German and French), 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 issues of the magazine "Die Volkswirtschaft" ( It is also available free of charge in PDF format on the Internet (

**Account must also be taken of the fact that the conversion of the national accounts to ESVG 2010 took place between the previous and the new forecast, making comparisons between the forecasts more difficult.

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