Forecasts for Swiss Economy: Slowdown of 1.1% Expected This Year June 15th, 2023

Maintained Forecasts

The Swiss government maintained its growth forecasts for this year and next while publishing update on Thursday (June 15). In the announcement the State Secretariat for Economic Affairs (Seco) noted a strong start to 2023 was observed with energy prices falling, but continued international inflationary pressures and economic risks were highlighted as factors that will put a strain on overall growth for this year. Thus, Switzerland’s economic growth is expected to slow down to 1.1% GDP this year, before recovering to 1.5% next year. Both numbers are well below government’s long-term average and down from 2.0% recorded in 2022. “The Swiss economy started the year vigorously, and energy prices continue to fall. “However, current indicators are giving mixed signals, and a general weakening of the Swiss economy is expected in the Second quarter,”  SECO said. “Overall, domestic demand would thus be the main pillar of growth in 2023. Foreign trade, on the other hand, will likely contribute little to GDP growth,” said SECO. Increases in domestic demand, private consumption and exports will be noted this year. For the first quarter of 2023 SECO stated solid private consumer demand was observed, as well as some growth in industry sector. Meanwhile, the unemployment rate, taking into the account both resident employees and cross-border workers, will be at 2% in 2023 and 2.3% next year.

KOF Forecast

Separately, Switzerland’s KOF economic institute published its data regarding economy in the country this and next year. It has revised its previous forecast to 1.2% from 1.1%, while next year’s figure was kept at 1.7%. For KOF labor market is very strong despite not-so-great situation in economic sectors. When it comes to unemployment rate, KOF pointed out that the International Labour Organisation uses different measurements and thus KOF predicts a 4.2% jobless rate this year and next.

OECD Forecast

Both forecasts, by Eco and KOF, are significantly more optimistic than the one published by the Organisation for Economic Cooperation and Development OECD. Outlook for Switzerland sees mere growth of 0.6% this year and only 1.2% in 2024.

Inflation Outlook

When it comes to inflation, SECO foresees it to decline to 1.5%, while KOF just lowered its forecast to 2.3% from previous 2.4%. OECD is this matter in line with SECO, with outlook of 1.5% as well. Swiss inflation is low by international standards, but still now it remains above target of 0-2% set by the Swiss National Bank. The SNB has been fighting inflation pressures by hiking interest rates, which were at record low minus level before inflation started to be an issue. Also, the SNB ditched its normal policy of stopping CHF exchange rate from getting too strong, as good exchange rate of Swiss franc curbs inflation. The SNB is expected to further raise interest rates in coming months, including on meeting on June 22nd. The bank is also due to update its economic forecasts after this next quarterly monetary policy review.