Economic recovery continues in Switzerland

Bern, 15.12.2016 - Economic forecasts by the Federal Government's Expert Group – Winter 2016/2017*. After displaying positive development over several quarters, Switzerland's GDP nearly stagnated in the third quarter of 2016. However, preliminary indicators now point to a renewed pick-up in growth, and the global economy is expected to continue generating momentum. The Expert Group therefore maintains its previous assessment and anticipates a GDP growth of 1.5% for full-year 2016. It expects to see a modest acceleration of GDP growth to 1.8% in 2017 and 1.9% in 2018, driven by both domestic demand and foreign trade. As the recovery continues, the unemployment rate will likely decline gradually from 3.3% (2016) to 3.2% (2017), and then to 3.1% (2018). The economic outlook thus remains positive, even if the "Swiss franc shock" will likely continue to have some impact on the economy.

International economy
The moderate growth of the world economy has continued throughout 2016. Neither the volatility on international financial markets at the beginning of the year nor the Brexit referendum in the summer were able to permanently slow the overall pace of expansion.

After a disappointing first half of the year, growth in the USA turned out to be surprisingly high in the third quarter (+0.8%)**. Along with the ongoing positive development of private household consumption, this growth was largely generated by foreign trade. While it is unlikely that the US economy will be able to keep expanding at this rate over the next few quarters, robust growth is still expected for the USA. The Euro area continued its moderate recovery in the third quarter (+0.3%), supported by private and public-sector consumption in particular. Given the current expansionary monetary policy, domestic demand can be expected to generate substantial momentum for growth in the Euro area over the next two years as well. The Expert Group anticipates that the current pace of growth will more or less be maintained throughout the forecast period. The expansionary monetary and fiscal policy in Japan can be expected to lead to a continuation of moderate growth in that country.

GDP in China increased by 6.7% in each of the first three quarters of 2016 (real growth as compared to the same periods in the previous year). This has eased concerns that the world's second-largest economy might experience a hard landing. In the third quarter, GDP growth was supported by the service sector, which thus offset the somewhat less dynamic development of the industrial sector. In view of the structural transformation the Chinese economy is undergoing, the Expert Group continues to anticipate that the pace of growth in China will gradually slow over the next few years. The economic situation is mixed in other important emerging markets. Several indicators in Russia point to an end of the sharp economic downturn in that country, for example, while Brazil remains in a deep recession.

Economic situation and forecasts for Switzerland
After four quarters of clearly positive development, the Swiss economy almost stopped growing in the third quarter of 2016 (+0.0%). The abrupt deceleration of GDP growth came rather surprising, particularly in light of the fact that growth was weak in nearly every sector that primarily relies on domestic demand. Nevertheless, the economic recovery in Switzerland does not appear to be in any real danger.

Current economic indicators point to an acceleration of growth in the fourth quarter of 2016. The Purchasing Managers' Index for the Swiss industry recently jumped to a level indicating a strong expansion. The KOF Economic Barometer recently settled at a level slightly above the long-term average, which also points to the resumption of economic growth. Consumer sentiment has remained below the long-term average for several quarters, but the most recent survey shows that consumer expectations regarding overall economic developments have improved significantly. The Expert Group therefore continues to anticipate a GDP growth of 1.5% for full-year 2016. The rate of growth will likely increase to 1.8% in 2017 and to 1.9% in 2018. While such figures do not amount to very strong growth, their attainment would demonstrate that the Swiss economy has returned to the solid growth rates recorded in the years preceding the "Swiss franc shock".

Here, domestic demand would likely prove to be an important driver of economic growth. Private household consumption, which has remained below expectations in 2016, should gradually increase during the forecast period. A recovery on the labour market and a moderate real wage growth should raise the purchasing power of private households. This could lead to an increase in consumer spending, also in view of existing potential to catch up. The ongoing increase in population will also have a positive impact on private consumption. In view of the favourable financing conditions on the market, as well as positive effects from the civil engineering sector, investment in construction can also be expected to slightly gain momentum. Finally, moderate growth in equipment investment can be expected as well.

Compared historically, foreign trade can be expected to make a well above-average contribution to GDP growth in 2016, primarily driven by strong growth in chemical and pharmaceutical exports. Export growth should return to normal levels over the next few years. However, other export sectors such as tourism and the mechanical engineering and metal industries will likely begin contributing more strongly to the growth of exports once again. The outlook for the export sector can thus still be viewed as mixed but nevertheless more positive overall.

The labour market continues to struggle with the impact of the economic slowdown in 2015. Job growth has remained weak and unemployment has been on a relatively high level. In view of this situation, job growth of 0.1% can be expected for full-year 2016, while the yearly average for the unemployment rate should total 3.3%. Still, given the recent development of unemployment numbers, it is likely that the turning point has now been reached. The Expert Group believes that, as the economic recovery proceeds, the labour market will gradually pick up once again. More specifically, job growth is expected to accelerate to a rate of 0.4% in 2017 and 0.6% in 2018. This should be accompanied by a gradual decline in the unemployment rate to 3.2% (annual average for 2017), and then to 3.1% (annual average for 2018).

The normalisation process that is already occurring with regard to inflation will likely be completed during the forecast period. A still negative inflation rate is expected for 2016 (-0.4%), but this should be followed by zero inflation in 2017 and an inflation rate of 0.2% in 2018.

Economic risks
One of the biggest risks to international economic development is posed by the increased political uncertainties at the moment. Along with the Brexit referendum, the Italian electorate's recent rejection of constitutional reform can be viewed as a reflection of centrifugal forces that might potentially destabilise European institutions. In addition, elections are to be held next year in two other large European countries – Germany and France. Up until now, international financial markets have remained remarkably calm in the face of such developments. However, if problems should occur (e.g. in connection with the struggling banks in Italy or the UK's withdrawal from the EU), the result could be a weakening of the European economy and a renewed appreciation of the franc – together with all the effects that this would have on the Swiss economy. Finally, the result of the presidential election in the USA has led to major uncertainty regarding future US economic and trade policies. Increasing protectionist tendencies could put further pressure on global trade, which has been developing sluggishly for some time now. This, in turn, could dampen the outlook for Swiss exports and thus negatively affect the Swiss economy.

* The Federal Government's Expert Group publishes its forecasts for Switzerland's economic development on a quarterly basis. More detailed information on the current state of the economy can be found in the quarterly publication "Economic Trends", which is published online ( and in printed form as an appendix to "La Vie économique" (
** Unless stated otherwise, percentage changes with respect to the previous quarter (not annualised) of real, seasonally adjusted series.

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Last modification 05.09.2018

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