Swiss economy to grow significantly below average in 2023

On March 16, 2023, Switzerland’s State Economic Office (SECO) released its latest economic forecast for the year.

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Focused on the business cycle, SECO’s team largely reconfirmed their previous assessment. The Swiss economy is projected to grow significantly below average at 1.1% in 2023, rising to 1.5% in 2024. The energy situation in Europe has eased in recent months. However, inflationary pressures remain high internationally.

Swiss GDP was flat in Q4 2022. The more cyclical industrial sector has been constrained by the tough international environment, and commodity exports have contracted, the agency said. Meanwhile, domestic demand continued to strengthen, in part due to solid employment growth. Despite recent mixed sentiment, the latest indicators point to a strong Swiss economy in the first quarter of 2023.

Internationally, current economic conditions are somewhat brighter than forecasted in December. The Chinese economy has rebounded significantly after the end of the COVID-19 zero policy. Moreover, the energy situation in Europe has eased in recent months. However, core inflation in major advanced economies has not fallen as much as expected, increasing the likelihood of a tightening of international monetary policy and a slowdown in global demand.

Domestically, relatively high inflation may also be expected in the short term. Swiss inflation in 2023 he is forecast to reach 2.4%. Private consumption will grow modestly over the next few quarters, supported by a strong labor market and rising nominal wages. Investment growth may be below average in the current environment.

Against this backdrop, the Swiss economy is expected to grow by 1.1% in 2023. As before, no energy shortages due to widespread production shutdowns are expected in the winter of 2023/24. At the same time, gas and electricity prices are expected to remain high by historical standards.

By the end of 2024, the European energy situation should become more stable and international inflation should gradually decline. Global demand will recover somewhat. Switzerland’s economic growth forecast for 2024 is now slightly lower at 1.5%, with average annual inflation at her 1.5%.

The economic slowdown could also affect the labor market, albeit with a time lag. The average unemployment rate is expected to reach 2.3% in 2024, following an average of 2.0% in 2023.

However, there are financial risks. Internationally, risks related to inflation and monetary policy responses come to the fore. Of particular concern is the risk of further sustained inflation, increasing pressure on global demand and the need for further tightening of monetary policy. This increases the existing risks associated with rising global debt and the risk of a correction in the real estate and financial markets.

Risks related to energy supply and prices also remain, especially for winter 2023/24. In the event of severe energy shortages in Europe, large production losses and a deep recession, a recession with high price pressures could also be expected in Switzerland.

However, it is also possible that the economy will do better than predicted. This could happen, for example, if energy conditions and inflation turn out to be more favorable than expected. This could lead to stronger demand both in Switzerland and abroad.

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