Shoppers open wallets in spending surge

The Swiss are in the mood to shop Keystone

Swiss shoppers are fuelling a consumer boom that has surged to its highest level in six years, according to a leading economic barometer.

The UBS Consumption Indicator tipped the scales at 2.13 points in March, up from 2.02 the previous month and the best level since July 2001, with consumers expected to spend more this year than last.

The Indicator, compiled each month by Switzerland’s biggest bank, together with Zurich’s Swiss Economic Institute (KOF), measures such benchmarks as the retail sector, new car sales, overnight hotel stays and credit card transactions.

It also draws on the State Secretariat for Economic Affairs’ (Seco) consumer sentiment index that also registered six-year-high levels of optimism in January.

The UBS Indicator showed particularly strong retail sales in March that made up for a four per cent year-on-year fall in new car sales.

The bank expects private consumption to grow 2.1 per cent in 2007 following a 1.9 per cent increase last year.

Daniel Kalt, UBS’s head of Swiss economic research, put the spending surge down to falling unemployment and a drop in oil prices.

But he believes inflation should be held in check by lower oil prices and the increased competition from European markets after Switzerland opened its borders to goods and labour in recent years.

Inflation fears quelled

“We currently have a very favourable inflation environment that means the economy can grow without fiscal policies needing to be restructured,” he told swissinfo.

“Opening the goods and labour markets to the European Union has led to structural pressure on our markets that serve to keep prices down.

“For example, drug prices have dropped in Switzerland as the pharmaceutical industry here has been forced to give into this [competitive] pressure.”

Inflation in Switzerland actually fell to zero in February, the lowest level for three years, according to official statistics. Fuel prices that month also dropped 4.8 per cent year-on-year.

But this did not stop the Swiss National Bank from raising interest rates by 25 basis points in March for the sixth consecutive quarter. The bank increased the target range for its benchmark Libor rate to 1.75-2.75 per cent, aiming for the midpoint of 2.25 per cent.

Observers expect another rate rise in June as the bank still has worries about a weakening Swiss franc.

Unemployment hit a four-and-a-half year low last month, dropping 0.2 per cent from February, to three per cent of the working population receiving unemployment benefit in March.

swissinfo, Matthew Allen with agencies

Key facts

UBS Consumption Indicator:
December 2006: 1.89 points
January 2007: 1.94
February 2007: 2.02
March 2007: 2.13

The previous high mark was in July 2001 when the indicator measured 2.50 points.
The long-term (1996-2007) private consumption average in Switzerland is 1.49 points.

In brief

Private consumption makes up 61% of Switzerland’s gross domestic product (GDP).

The UBS Consumption Indicator was first launched in January 1996 and signals private consumption trends some three months before official government figures are released.