Sluggish growth prospects for the Swiss economy

Bern, 13.12.2011 - Federal Government’s Expert Group on Economic Forecasts - Economic Outlook Winter 2011/2012* - Under the influence of an increasingly bleak economic outlook in the EU and the strong Swiss Franc, the Swiss economy has quickly lost momentum over the last months. An economic crisis similar to the one experienced in 2008/2009 seems unlikely however. Under the assumption that the euro debt crisis does not further escalate, the economic slowdown in Switzerland should be limited in depth and time. The Expert Group forecasts a weak GDP growth for 2012 (+0.5%), followed by a recovery in 2013 (+1.9%). Unemployment will noticeably rise in 2012 as a consequence of the faltering economy.

International economy
The international economic environment remains fragile at the end of 2011.  Financial market turbulences induced by the unsolved depth crisis are increasingly hampering growth pro-spects for the world economy, especially for Europe. On the one hand, governments are under pressure to implement restrictive fiscal policies (tax increases or spending cuts). On the other hand, the uncertain economic outlook weighs negatively on private investment and consumer demand. Hence, economic growth is expected to be rather weak in the Eurozone for the upcoing quarters, the possibility of a mild recession cannot be excluded. The Federal Government's Expert group assumes that the European debt crisis will not deepen and spread further. It also assumes that tense situation on the financial markets will gradually relax next year. Under such conditions, the economy in the Eurozone is expected to recover gradually.

In other regions of the world, the economic outlook is a bit less dire, though far from rosy. The stuttering economy in the US was able to gain momentum after the middle of the year, while the Japanese economy recovered from the natural and nuclear catastrophe from early 2011 as expected. Economic growth remains robust in Emerging markets, despite obvious signs of a slow down, they are expected to continue to contribute positively to world economic growth in 2012.

However, even if the current crisis can be brought under control, the structural problems which are at the heart of the current crisis will continue to influence negatively the world economy. The necessary deleveraging process in many industrialized countries will be a heavy burden for economic growth dynamics during the next years.

Economic forecast for Switzerland
In Switzerland economic growth has been robust throughout the first half of the year 2011. It slowed however markedly in the second half of 2011 and in particular during the third quarter. The modest growth in the third quarter (+0.2% over the previous quarter) came mainly from the domestic sector, in particular construction. On the other hand, the unfortunate combination of a weaker global economy and a still strong Swiss franc began to exert a drag on Swiss exports durint the third quarter. Capital expenditures also declined during the third quarter. The SNB's exchange rate intervention introducing a lower limit on the CHF/Euro exchange rate stabilized the currency situation for many companies. Even at its present exchange rate (approximately 1.23 CHF/EUR) the franc remains highly valued. The corresponding high unit labor costs continue to harm the international competitiveness of companies in Switzerland.

Against the background of still declining sentiment indicators, a very weak period or even a slight contraction looms over the economy for the next few quarters. However, the available indicators are not pointing to a severe economic downturn until now, similar to the one that followed the collapse of investment bank Lehman Brothers at the end of 2008.

Due to the further deterioration of Europe's economy and its impact on the Swiss export sector, the expert group assumes that the dip in the Swiss economy in 2012 is likely to be deeper than forecasted in September 2011. GDP growth for 2012 is now expected to reach +0.5% (previously +0.9%). This revision does not affect the overall interpretation published in September 2011, in particular that a severe downturn in 2012 is not expected until now. During the second half of 2012 the economy should gradually start to recover: GDP growth in 2013 may accelerate and reach +1.9% on a yearly average.

Both exports and solid domestic demand are expected to help the economy return to growth in 2012 and 2013. When foreign economies start to recover, Swiss exports will begin to expand again, though the high valuation of the franc will continue to constrain exports growth. Sustained positive impulses from the construction industry are expected. Even though this sector has certainly reached its record levels and may be beyond its peak in terms of growth rates, residential construction will continue to expand due to low interest rates and a growing population. A low expected inflation rate will lead to higher real incomes for households, which should have a positive impact on their consumption decisions.

In the fall of 2011, first signs of a trend reversal in the labour market have materialized. In October and November unemployment climbed slightly for the first time in two years (on a seasonally adjusted basis). Current figures don't yet indicate a decline in employment, but  leading labor market indicators show that growth in hiring will weaken in the near future.  During 2012  the labor market is expected to weaken further. The expert group assumes that the (seasonally adjusted) unemployment rate of 3.0% will continue to rise in the coming year and peak at 3.9% at the end of 2012, before it starts falling again over the course of 2013. The annual average unemployment rates will be 3.1% for 2011, 3.6% for 2012 and 3.7% for 2013.

Economic risks
Uncertainties associated with the European debt crisis emerge clearly as the greatest economic risk. A central requirement for a mild economic downturn (internationally and in Switzerland) is the absence of a broad-based banking crisis. Such a crisis could potentially have severe consequences on the real economy (e.g. in the form of a serious credit crunch for companies). As the financial markets remain nervous, it is still not possible to say that the worst is over.

On the other hand if trust could return to financial markets in a sustainable way, a very positive impact on economic prospects could be expected. On the one hand, the Swiss economy would profit from the associated improvement in the Eurozone's prospects. On the other hand, it may lead to a lower value of the franc (weakening safe-haven effect), which would in turn support exports.

* The Federal Government’s Expert Group on Economic Forecasts publishes quarterly forecasts for the Swiss economy. The current forecast from December 2011 is commented on in this media release. The “Economic Trends” (only available in French and German), a quarterly publication from SECO is released in printed form as an appendix to the February, April, July, and October issues of the magazine "Die Volkswirtschaft" ( They can also be found in the internet under the following address:
 ( (as pdf files).

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