Global slowdown brakes Swiss economy

Economic woers in Germany and China have negatively impacted growth in Switzerland. © Keystone / Alessandro Della Valle

Switzerland’s economy stalled in the second quarter as its manufacturing sector fell victim to waning global demand.

Gross domestic product, adjusted for large sports events, was flat in the three months through June after a 0.9% spurt at the start of the year, data published on Monday show. Economists anticipated an increase of 0.1%, according to the median estimate in a Bloomberg survey.

“The challenging international environment is weighing on the cyclically sensitive industrial sectors such as mechanical engineering and metal construction,” Switzerland’s State Secretariat for Economic Affairs said. “This was also reflected in a broad-based decline in goods exports.”

Household spending helped buoy the economy, as did – to a lesser extent – government outlays. Trade contributed to grow because of higher overseas sales of services. 

The numbers point to waning resilience of the Swiss economy from the woes suffered by its biggest trading partner, Germany, at a time when China’s weakness is impacting industrial exporters around the world. A survey of purchasing managers in Switzerland has signalled contraction in manufacturing since January.

Swiss National Bank officials will look to the report for clues on the impact of past interest-rate increases on the economy as they try to contain inflation. Policymakers will decide later this month whether to keep hiking or to pause tightening. 

The country has dodged the worst of the global energy and inflation crises, and has seen buoyancy in its large services sector, where tourism and hospitality have capitalised on catch-up effects after the pandemic. 

Economists currently predict growth of 0.8% for this year, with risks to that outlook including the strength of the franc, which weighs on sales of export-oriented companies, stalling real wages and rising costs of rents and electricity. 

A blow to consumption would hurt the main driver of the early-year expansion.

“The second half of the year will see weaker growth,” Alexander Rathke from the KOF economic research center at ETH Zurich university said before the report. “The upswing will slow somewhat, but I don’t see a big crisis ahead.”

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