Swiss economic health remains in the balance

Consumer spending is starting to slow down in Switzerland Keystone

Switzerland’s economic growth prospects appear to be brightening up a touch, just as confidence in the global performance takes a dip. But this does not mean that Switzerland has suddenly cracked its strong franc woes, or that the future is all rosy, according to observers.

On Wednesday, the Organisation for Economic Co-operation and Development (OECD) lowered its global economic growth forecastExternal link from 3.2% to 2.9% for this year. In the last few weeks, some Swiss forecasters have been busy raising their Swiss GDP forecasts.

Last week BAK Basel said the Swiss economy would grow by 1.6% this year – in June its prognosis was for a markedly less healthy 1%. “The Swiss economy has developed in a surprisingly dynamic nature in the first half of 2016,” BAK said in its press release. “The success story of the Swiss economy will continue in 2017 and 2018, growing at a faster rate than the eurozone.”

The KOF Swiss economic Institute followed suit by raising their forecast from 1.1% to 1.3%. The Swiss government were more conservative (1.5% prediction in September from 1.4% in June), but most indicators point to a slightly improved picture.

And this is a much better state of affairs than in the United States, where the OECD lowered their forecast from 1.8% to 1.4% or post-Brexit Britain that saw faith in its economy drop even further (from 2% to 1%).

In addition, Swiss exporters are now a lot more confident about their future than at the turn of the year, according to a poll conducted by Swissmem – the umbrella group for the mechanical and electrical engineering, machine building and fine tools sector.

Health warnings

But the improved outlook in Switzerland’s economy still comes with a number of health warnings. In a recent economic outlook report, Credit Suisse bank warned that there was “no call for euphoria”.

Export growth was largely driven by the pharmaceutical sector, while private consumption (Swiss people spending their money at home) and investments in companies have recently declined. “There can therefore be no talk of a broad-based upturn,” Credit Suisse concluded.

Felix Brill, chief economist of Wellershof & Partners consultancy, reinforced the message of caution, noting also that private consumption – as well as construction spending – were weakening. “These were both very important growth drivers in the last couple of years,” he told swissinfo.ch.

Brill is impressed with the way that Swiss companies have negotiated their way out of the strong franc trap. He believes that the franc has room to weaken in the coming months, giving a further boost to exporters.

But the big potential banana skin for the Swiss economy is the political decision on how to dampen down the number of immigrants arriving in the country. The government has until February to find ways to implement a 2014 people’s initiative on curbing immigration that would satisfy both Swiss voters and the European Union.

“If Swiss-EU relations turn sour it could have a severe long-term impact,” Brill said. “If the bilateral agreement model is put under threat, then it would also bring the short-term damage of putting foreign investors off Switzerland.”