Signs of economic stabilisation

Bern, 15.03.2012 - Economic trends and forecasts from the Federal Government’s Expert Group on Economic Forecasts - spring 2012*. By the end of 2011 economic activity in Switzerland had seen a marked slow-down, although a further deterioration – leading to a recession - appears unlikely. The Euro debt crisis has eased slightly since the beginning of the year and economic surveys in Switzerland are pointing to the beginning of a stabilization. The prospects for a gradual pick-up in economic growth over the remainder of the year 2012 look good. The Federal Government’s Expert Group anticipates modest growth in GDP of 0.8% for 2012 which is likely to further strengthen in 2013 (+1.8%). However, a positive reversal in the trend of unemployment will only take place gradually.

International economy
The recovery of the world economy is facing less uncertainty during the Spring of 2012 than a quarter ago, though a considerable degree of heterogeneity across countries remains. As expected, the Euro region finds itself on the edge of a (slight) recession as a result of the burdens caused by the debt crisis (amongst other things important fiscal and financial consolidation programs in a number of countries) but the first signs of light at the end of the tunnel are appearing. Thanks not least to the measures taken by the ECB to increase liquidity the critical tensions on the financial markets have eased since the beginning of 2012, this in turn being reflected in lower risk premiums for (peripheral) countries and banks. In addition, some economic surveys indicate that stabilization is taking place. The likelihood of a gradual economic recovery has therefore improved. There will however be a marked differential between the individual countries of the Euro region: whilst the prospects in Germany for example have already brightened up significantly, various other countries, including Italy and Spain, have slid into a clear recession. 

The economies of other regions of the world are performing comparatively better. In the USA the economic recovery has gained momentum over recent quarters, the effects of which are also gradually been felt in what has up to now been a very weak labor market. However, as a result of the aftermath of the latest crisis - a real estate market on its knees, high unemployment and consumer debt – the continuation of a strong upturn in the US economy is not expected. The emerging countries continue to play a positive role for the global economy - despite the obvious signs of a slowdown.

Despite the slight improvement in the economic prospects, the burden of structural problems inherited from the past and of structural adjustments will continue to hamper economic growth in many OECD countries. The need in particular to reduce the high levels of debt (both sovereign and domestic household) will continue to put a brake on the economic growth dynamic for several years.

Economic forecast for Switzerland
Economic activity in Switzerland cooled off markedly to the end of 2011. This came as no surprise in view of the difficult conditions in the export markets (strength of the Swiss franc and faltering EU economy). Nevertheless, unlike many EU countries, GDP growth in Switzerland remained in positive territory in the 4th quarter (+0.1% compared with the previous quarter). Furthermore, since the beginning of 2012, survey indicators have been pointing to the first signs of a stabilization; both in the business climate for companies as well as for consumer sentiment. This suggests that the economy has ‘bottomed out’ and a further deterioration is expected to be avoided.

The fact that the Swiss economy remains in relatively good health despite the unavoidable slowdown is attributable on the one side to the fact that domestic demand has remained solid. For some time now we have been seeing an active increase in construction investments thanks to the favorable general conditions such as low interest rates and a growing population. In addition, domestic household spending is also providing a positive boost. Furthermore, the weakening in the export sector has been less marked than had been feared just a few months ago, with sector diversification playing a key role in this respect. Whilst tourism as well as the machining, electronics and metal industries are reporting a falling trend, other areas such as the watch and clock industry, chemicals/pharmaceuticals, are continuing to thrive. The problems of exchange rates experienced by companies seem to have eased somewhat as a result of the SNB having set a lower limit on the CHF/Euro exchange rate, even though the value of the Swiss franc remains at a high level by historic comparison.

Overall, the Federal Government’s Expert Group reaffirms its view that the Swiss economy is suffering from a marked dip in economic activity but not a recession. Providing there is a continuation of the slight improvement in the international market conditions - particularly the easing of the Euro debt crisis - the growth in the Swiss economy is likely to gradually gather momentum during the remainder of the current year. For the full year 2012, the Expert Group now forecasts GDP growth of 0.8% (previously 0.5%). The key factors for the slightly more favorable assessment compared with the forecast in December are the less pronounced weakness during the winter.

The Expert Group anticipates a continuation of the economic recovery in Switzerland for 2013 and GDP growth of 1.8% (previously 1.9%). However, a strong upturn is likely to be hindered by the burdens on the economic prospects in many OECD countries resulting from the necessary deleveraging process as this will put a dampener on the growth for Swiss exports.   

On the labor market, we have been seeing the first signs of a negative, cyclical-induced trend since last fall, consequently unemployment has so far only risen slightly (rise in the seasonally adjusted unemployment rate from 3.0 to 3.1% as at the end of February 2012). Various lead indicators also suggest that there will be no rapid deterioration over the coming months. Nevertheless, the current weakness in the economy is likely to have a more medium term impact, particularly in problematical areas of the economy (such as the export industry, tourism, financial sector). Past experience shows that there is a time lag in the response by the labor market to the general economic development. Given the forecast of a somewhat moderate economic recovery, the Expert Group anticipates that unemployment could continue to rise through to next year before it begins to fall again. This means average unemployment rates of 3.4% for 2012 and 3.7% for 2013.

Economic risks
Despite the easing trends over recent weeks and months the Euro debt crisis continues to pose a significant risk factor for international economic development and, consequently, for Switzerland as well. The relaxation of tensions on the financial markets, up to now primarily attributable to the ECB’s liquidity measures, will first need to be underpinned in the Euro countries through convincing economic policy reforms (financial policy and structural growth policy reforms), a task which is likely to take several years. In the meantime the debt problems of many of the Euro countries remain acute and will be made even more difficult by the current downturn or the recession in some countries. Against this background the possibility of the risk of a renewed loss of confidence in the financial markets cannot be ruled out. The tense political situation in the Middle East represents another potential risk. In the event of military escalation the latest rise in oil prices could see an even more significant hike, placing an additional burden on the international economy.

On the other side however, it should be emphasized that in the past the Swiss economy has managed to exceed expectations against global economic framework conditions which have been frequently unfavorable (global financial crisis, Euro debt crisis and strength of the Swiss franc). The same applies to the latest weakness in the EU economy and its consequences on Switzerland, which appears so far to be less pronounced than had been feared just a few months ago. This relative robustness could suggest structural strengths (e.g. increased resistance to crises in the export industry thanks to advantageous diversification by sector and sales markets, as well as the positive effects of immigration on domestic demand) which could also have a positive impact on the overall economic growth dynamic over the years ahead.

* The Federal Government’s Expert Group on Economic Forecasts publishes quarterly for the Swiss economy. This media release comments on the current forecast of March 2012. The current edition of "Economic Trends", a quarterly publication from the SECO, integrates these forecasts and goes into more detail on other aspects of the current economic development. This publication appears in printed form as an appendix to the February, April, July and October issues of the magazine "Die Volkswirtschaft" (www.dievolkswirtschaft.ch). They are also available for downloading as a PDF file free of charge from the Internet under the following address http://www.seco.admin.ch/themen/00374/00375/00381/index.html?lang=de.


Address for enquiries

State Secretariat for Economic Affairs SECO
Holzikofenweg 36
CH-3003 Bern
Tel. +41 58 462 56 56
medien@seco.admin.ch



Publisher

State Secretariat for Economic Affairs
http://www.seco.admin.ch

https://www.admin.ch/content/gov/en/start/documentation/media-releases.msg-id-43758.html