Switzerland’s Economy to Grow Only by 1.% This Year

Lower Growth

Swiss economy is expected to grow by 1.3% in 2023, as per government’s statement released on Wednesday. This value is significantly below the country's long-term average. The outlook was a mild upgrade from the previous forecast of growth at 1.1%. However long-term average in the country is 1.7%. even though strong consumer demand and growth in service sector is foreseen, a stronger growth won’t happen neither this nor next year. The State Secretariat for Economic Affairs (SECO) also revised down its growth forecast for 2024 to 1.2% from the 1.5% outlook reported back in June.  "After a buoyant start to the year, Switzerland's economy stalled in the second quarter. The industrial sector recorded a decline in both investments and value added. Current indicators do not signal a trend reversal in the months ahead” – SECO said.

Drop in Mechanical, Electrical Sector

In another bad news for Swiss economy this week, the mechanical and electrical engineering sector reported a massive 9.6% drop in new orders in the first half of 2023. Additionally, the forward looking Purchasing Mangers Index was below the crucial 50 level for expansion every month this year.

CHF Good Exchange Rate Hurts Export

Switzerland’s industry is under a lot of pressure with a very strong Swiss franc hurting export and causing week demand abroad. The rise of Swiss exchange rate cause a lot of troubles for the economy. Also weakness in the euro zone, which still is Switzerland's most important export market, impacts negatively the economy. Globally, economy is also taking longer to recover than previously expected, after a very challenging few years. When it comes to CHF exchange rate, the Swiss National Bank is meeting on Thursday and is expected to hike interest rates yet again to curb inflation. Most economists expect interest rate to be raised by a further 25 basis points to 2%. However some are in favor of a pause in the rate hike cycle, thus this cannot be ruled out.

Inflation to Exceed Target

Inflation is stuck on too high levels as it is expected to be above the Swiss National Bank’s target for the rest of the year, as per notes of the Organization for Economic Cooperation and Development. In its quarterly Global Economic Outlook report, the OECD foresees inflation to peak at 2.4% this year, while the SNB’s range is under 2%. By 2024 inflation should fall back to 1.2%. “Monetary policy will have to be tightened again to ensure that inflation returns to its target range,” stated the economists.