Swiss Economy in Stagnation in Q2

Stagnation

The Swiss economy stagnated during the second quarter of 2023, with zero growth reported, adjusted for income from sporting events, the government said on Monday. The 0% growth for Q2 was down from a 0.9% increase in the first quarter of the year, and below the 0.1% growth rate expected in a Reuters poll. Compared with a year earlier, the Swiss economy grew by 1.1% in Q2. Back in June the Swiss government expected the economy to grow by 1.1% this year, with a 1.5% increase in 2024. The slowdown observed worldwide finally hit Switzerland. However, the private consumption remained strong, with 0.4% growth over the quarter, triggered by the post-pandemic rebound, especially observed in catering and hotel industry, as well as healthcare and food sectors. Also export of services was doing better.

Manufacturing Sector

The main reason for stagnation was the slowdown in manufacturing sector – it contracted by -2.9% quarter-on-quarter. The biggest decline was recorded in normally strong in Switzerland, chemical and pharmaceutical industries, as well as in the construction sector. The latest is being hurt by rising interest rates with investment down by-0.8%. Swiss export of goods also was in trouble with a decline of -1.2% over Q2. "The challenging international environment is weighing on the cyclically sensitive industrial sectors such as mechanical engineering and metal construction, resulting in a second-quarter decline in value added for the rest of industry," said the State Secretariat for Economic Affairs (SECO).

What’s to Come?

The Swiss economy is likely to remain in bad shape over the next few quarters, being close to stagnation through next year. As the start of this year was quite strong, overall there is expected a growth of 0.7% for 2023, in 2024 it should be at 0.6%, below long-term average.

Swiss Inflation

When it comes to inflation, it has remained below 2% in the last three months, in line with the Swiss National Bank's (SNB's) target. With the economy slowing, salaries growth still moderate, producer price growth back below 2%, import prices down year-on-year, there shouldn’t be any sharp pick-up of inflation in months to come. The SNB managed to keep it in line with some interventions on foreign exchange rate market that also stabilized the ever-growing exchange rate of Swiss franc.