IMF predicts slowdown, CHF EUR rate goes up

Slowdown is expected

IMF released on Monday April 1st a statement after its mission in Switzerland that took place in days March 21st to April 1st. It concluded in it that ongoing regional slowdown, tensions in global trade that are intensifying as well as the disruptive Brexit will affect vastly the Swiss economy. Other factors influencing the economy in Switzerland include weaker external demand, lack of biennial sporting events and subdued domestic demand. All together these factors will result in inflation at level lower than 1% at the end of this year. The gross domestic product is expected to be at 1.1%.

IMF indicates risks

The head of IMF Rachel van Eiken outlines some national risks that in the opinion of the financial institution will impact the economic slowdown in Switzerland. These are mostly real estate and mortgage loans as 85% assets of banks are cumulated in these areas. Other exposed areas are insurance companies and pension funds. The Fund also seemed concerned about corporate taxation or old-age pensions that may increase volatility for business operations. On the good note, the IMF stated that monetary policy of the Swiss government generally has aided mitigating negative effects of overvalued Swiss Franc and has been stabilizing inflation. However, the Fund gave to the Swiss authorities the recommendation to give greater role to Financial Market Supervisory Authority FINMA, together with increasing its headcount. Specifically, it recommended that FINMA should be able to conduct more on the spot checks in huge banks.

Other institutions almost agree

Not only the IMF has been predicting lately the Swiss growth for this year. The Swiss Economic Institute KOF has issued its own forecast for 2019. It revised the outlook for growth from 1.6% to just 1%. It kept unchanged the forecast for 2020 at 2.1%. Reasons for lowering the outlook KOF gave similar: uncertain Brexit situation, slowdown in China, worse conditions in the euro zone etc. The KOF forecast is a bit lower that the one proposed by the Swiss National Bank – a few days ago it released a 1.5% GDP outlook for 2019. The State Secretariat for Economic Affairs however also predicts 1.1% GDP in 2019 as revised from 1.5%. The economists at UBS meanwhile lowered the outlook to 0.9% from 1.1%. In 2018 the GDP growth was at 2.5%.

Financial sector losing share

This week brought also the other news concerning the GDP. The financial, fintech sector is losing its share in GDP. Last year it amounted CHF62.8 billion representing 9.1% of GDP, whereas a decade earlier it was at 11.1% with CHF67 billion. The number of employees engaged in the financial sector also fell, as comparing to ten years earlier the number of employees in total workforce was at 5.9%, last year whereas at 5.2%. Even though, the financial branch still brings a lot of public revenue as the tax revenue in 2016 was equal to CHF6.5 billion as compared to CHF5.8 billion in 2012.

Current Franc Euro rate

The exchange rate franc euro has moved slightly up in the last 5 days. For people who wanted to change money at the end of last week was a very good moment because the EUR rate was on a long-term low. So it is cheaper at the moment, if someone wants to change euros and buy francs. However, the political uncertainty associated with Britain's exit from the EU could further depress the CHF EUR exchange rate.

To compare the current exchange rates we recommend our currency converter Euro CHF.