Painful adaptation of the economy to the strong Swiss franc

Bern, 16.06.2015 - Economic forecasts from the Federal Government’s Expert Group – Summer 2015* - The economic slowdown of the Swiss economy was confirmed at the beginning of the year. GDP at constant prices fell by -0.2% during the first quarter and several economic indicators have contracted considerably since February of this year. Foreign trade (contribution of the trade balance) is expected to have a negative impact on growth in Switzerland throughout 2015 as a whole. In light of the steady, albeit weak, economic recovery in Europe and the continued positive expansion of domestic demand in Switzerland, the Federal Government’s Expert Group predicts that Swiss GDP will grow by 0.8% in 2015 (revised from 0.9% forecast in March). An improvement of the situation is expected for 2016 with GDP growth of 1.6% (revised down from 1.8% forecast in March). Since February, the number of unemployed persons in Switzerland has once again risen with the annual average rate of unemployment forecast to reach 3.3% in 2015 and 3.5% in 2016.

International economy
In the US, GDP fell by 0.2% in the 1st quarter of 2015 following three consecutive positive quarters. The negative start to the year can, in part, be explained by the hard winter and the widespread port strike. In the coming quarters, however, the export economy is also expected to suffer under the appreciation of the dollar. Domestic demand also fell short of expectations. Consequently, the American economy is expected to grow by 2.3% in the coming year, 0.9 percentage points less than previously anticipated.

First-quarter growth in the Euro area in 2015 was 0.4%. In light of the supportive effect of low oil prices, a weak Euro and expansionary monetary policy, the recovery remains extremely slow. Germany underperformed in the first quarter. Numerous indicators nevertheless point to an acceleration in growth in the near future. Moderate growth is expected for the Euro area in the coming quarters (2015: 1.4%; 2016: 1.7%).

The other regions of the world report mixed news. The Japanese economy grew by 1.0% in the first quarter of the year. India reported strong GDP growth for the past fiscal year. China has found itself on a somewhat lower growth path. Russia is currently suffering a severe recession. In addition to political uncertainties and the economic sanctions linked to the Ukraine crisis, low oil prices are hurting the economy. As an exporter of raw materials, Brazil is also suffering from the sustained fall in prices.

Situation and economic forecast for Switzerland
During the 1st quarter of 2015, the trade balance of goods and services had a negative impact on growth in Switzerland (fall in exports and increase in imports). The positive development of final domestic demand was not sufficiently robust to prevent GDP from falling by 0.2%. Although a proportion of this contraction can be linked to the appreciation of the Swiss franc since mid-January, specific elements also help explain this weak growth at the start of the year. Chemical and pharmaceutical exports, which usually do not react strongly to exchange rate fluctuations, fell by 3% during the first quarter while investments in the construction industry, which were positive in the first quarter, also began to lose growth momentum – a fact that should not be linked directly to the exchange rate.

Due to the weak progression of economic activity observed in the first quarter of 2015 and the downward revision of certain exogenous assumptions (in particular expected growth in the United States for 2015), the Federal Government’s Expert Group is now forecasting 0.8% GDP growth in Switzerland in 2015 (instead of 0.9% forecast in March). The Expert Group expects an adaption of the economy to the new exchange rate environment without falling into a severe recession. However, this implies robust domestic demand and further recovery of the world economy. For 2016, expected GDP growth at constant prices is 1.6% (instead of 1.8% published in March). While several economic indicators have deteriorated, sometimes quite significantly since February, the latest advance indicators (KOF economic barometer, PMI indicators) available since May would suggest a gradual improvement over the coming quarters. However, the data on the external sector remains worrying.

On the labour market, the number of unemployed people once again began to rise since February (recently at a rate of 1,500 people per month after correction for seasonal influences). Last May, the seasonal adjusted unemployment rate was 3.3% (figures and definition from SECO). The increase in unemployment would currently appear to concern German-speaking Switzerland more than French-speaking Switzerland or Ticino. For 2015, the predicted average unemployment rate of 3.3% has remained unchanged. The unemployment rate forecast for 2016 has been revised upwards (annual average of 3.5% instead of 3.4% published in March).

Since January, the appreciation of the Swiss franc had an effect on several prices (producer price, import price, export price and consumer price). The downward trend of consumer prices continued in May. The forecast of consumer prices also remained unchanged (-1.0% in 2015 and +0.3% in 2016). The corrections of the export prices bear witness to the efforts made by exporters to limit the increase in the prices of their products and services in foreign currencies, even if this involves reducing their margins. Additionally, price competiveness of Swiss exporters suffers also from weak price evolution abroad. At the same time, import prices also fell considerably whereby imported intermediate goods are also cheaper.

Economic risks
The economic effects due to the sharp appreciation of the Swiss franc remain uncertain. The Swiss economy continues to be vulnerable against further fluctuations of the exchange rate. The chances of success for Greece of finding a solution to the problem of financing debt remain highly uncertain. If an extreme solution were envisaged, the risk and uncertainty relating to the short-term progression of the exchange rate of the Swiss franc to the euro must be taken seriously. In contrast, a temporary solution to the crisis and a stronger economic recovery than expected in the euro zone in 2015 should facilitate a depreciation of the franc in relation to the euro.

The recession in Russia and the less severe slump forecast for Brazil this year together with the sluggish growth in various emerging economies in Asia are all events which may cause the dynamics of world trade to slow down more than expected. In such a scenario, the growth forecast for Switzerland would have to be revised once again. In recent years, these countries have played a non-negligible role in the growth of positive trade balances in Switzerland.

Finally, the dynamics of investment – doubtless already dampened by the uncertainties linked to the institutional relationships between Switzerland and the European Union – could be dampened even further. Moreover, the new monetary context (negative interest rates in Switzerland, quantitative easing by the EZB) may inhibit uncertain consequences.

*The Federal Government’s Expert Group publishes forecasts for Swiss economic development on a quarterly basis. This media release comments on the current forecast of June 2015. “Economic Trends”, a quarterly publication from the SECO, integrates these new forecasts and explores other aspects of the current economic development in greater detail. This publication is available as an appendix to the magazine La Vie économique ( It is also available free of charge online in PDF format (

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Last modification 14.05.2024

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