SWITZERLAND: Positive Trend is Weakening

Although the GDP grew by 2.5% in 2018, it has sensibly weakened in the 2nd semester and should follow this trend in the next months. In the 4Q 2018, the GDP grew by 0.2% q/q because of the stagnating domestic final demand (+0,3% y/y). In the 4Q, the industrial production (+1.3% q/q) was the major growth factor while production in the construction sector decreased by 2.5% y/y. The KOF Economic Barometer level (Feb. ’19: 92.4 points) under the long-term average of 100 can be compared to the level generated by the shock of the Swiss franc strength in 2015. Production capacity utilisation in the industry (84.3%) deteriorated somewhat in 2018 due to the declining economic activity.

In 2018, the MEM-Industry (machines, electronic and metal) recorded increased sales (+11%), orders (+6.5%) and exports for all product groups (+4%) but the improvement of margin position was insufficient. After losing dynamics during the 2nd semester, stagnation or even a decrease of incoming orders is expected for 2019 because of a slowing demand from the main sales markets. For the industrial sector the conclusion of an institutional agreement with the EU could be highly relevant. The seasonally adjusted unemployment rate (Feb. ’19: 2.7%) is as low as before the 2008 financial and economic crisis. Surveys point out to a growing difficulty for companies in the industry to fill vacant positions. The annual inflation rate (0.6%) remains consistent with price stability. Account taken of ECB’s loosen monetary policy, the SNB could postpone increasing the leading interest rates (-0.75%). A stronger Swiss franc (1.13 Fr./EUR) and a weaker global economy could hinder the development of exports (’18: +5.6%) and investments.

April 2019