Eurozone woes drag back Swiss GDP forecasts

Oh dear. The picture of the global economy at present Keystone

Switzerland has reduced its economic growth forecasts on the back of the declining performance of its main trading partners in Europe, most notably Germany. Gross domestic product (GDP) is now tipped to expand 1.8% this year, rather than 2%.

The State Secretariat for Economic Affairs (SECO) has also cut GDP growth predictions to 2.4% for 2015, down from the 2.6% it forecast earlier this year. But SECO warned that changes to the way it calculates growth make a direct comparison between these figures difficult.

“In light of the dampened short-term economic outlook for the euro region, including Germany, the conditions deteriorated compared with the last forecasts in June,” SECO said in a statement.

“Even six years after the outbreak of the global financial crisis, the global economic recovery remains fragile and prone to many risks. A sweeping, broadly based improvement in the international economic situation is still not in sight. As uneven global recovery continues, there is no uniform picture in terms of country and region.”

SECO’s gloomy picture was backed up by a crash in the price of government bonds, particularly United States treasury bonds, as markets reacted to a rash of bad news from around the world. The price of oil is also in free fall, a certain indicator of slackening industrial demand.

Swiss food producing giant Nestlé also reflected the weakening economic conditions in its third quarter results reported on Thursday. Sales fell to CHF66.2 billion ($70.3 billion) in the first nine months of the year, down 3.1% from the CHF68.3 billion posted in the corresponding period in 2013.

Nestlé chief executive Paul Bulcke bemoaned the “volatile global trading environment where there are no tailwinds” for the disappointing result. Analysts pointed to a slowdown in demand from Chinese consumers.

Ukraine effect

Practically all parts of the world have been affected by the latest economic downturn with emerging economies in Asia and South America witnessing poor returns recently.

But the picture is especially bleak in Europe and the worsening relations between Russia and the West over Ukraine have affected trade, worsening the situation. This has been blamed for undermining the normally reliable German economy.

Earlier this week, Switzerland’s single largest trading partner dropped its GDP forecast from 1.8% growth this year to 1.2% and from 2% in 2015 to 1.3%.

German Finance Minister Wolfgang Schäuble said the trend “is not particularly wonderful” but said that it is “no reason to start talking about a crisis”.

But even the short-term effects of the slowdown are filtering through to Switzerland.

“In view of subdued economic activity in key foreign markets, a significant pick-up in Swiss exports has not yet materialised,” said SECO. “In addition, domestic demand, which has made a significant contribution to the robust economic performance over recent years, lost some momentum in the first half of 2014.”

This echoed warnings early this year from economists who feared that Switzerland had used up much of its room for manoeuvre, having already dropped interest rates to rock bottom, taken measures to cool down an overheating real estate market and voted to restrict immigration.

Cloudy, with scattered sun

Another pillar of relative Swiss economic strength, high employment rates, is also threatened but only marginally so. SECO raised its forecast unemployment rates to 3.2% this year (previously prediction was 3.1%) and 3.1% (from 2.8%) in 2015.

However, the labour market remains robust for the moment, according to an index published by job placement agency Adecco and the University of Zurich.

The employment barometer, which measures the number of jobs being offered by companies, rose 2% for the whole of Switzerland in the third quarter, with the best employment opportunities in the east of the country.

Further bright news for the Swiss economy is coming from the United States, which is starting to show signs of sustained economic recovery. Britain and Spain were also hailed by SECO as showing steady progress, but these are the few rays of light in a rather gloomy global outlook.

A range of other forecasters, from the Swiss National Bank, BAK Basel and Credit Suisse have also recently revised down their hopes for Swiss economic growth.