Swiss economy struggles to recover after slump
Published: Friday, Dec 1st 2023, 12:30
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The Swiss economic engine continues to stutter. After a slight decline in spring, the local economy struggled to pick itself up again in the summer and is dragging its feet. The outlook is not rosy either.
In the third quarter, real gross domestic product (GDP) grew by 0.3% compared to the previous quarter, as reported by the State Secretariat for Economic Affairs (Seco) on Friday. GDP growth also amounted to 0.3 percent on a sporting event-adjusted basis. This is because there were no football World Cups or European Football Championships, which generate a lot of money for FIFA and UEFA, which is booked in Switzerland.
This meant that the development was significantly below the dynamic growth in the USA, but was more favorable than in the eurozone and was at the upper end of expectations, Seco wrote. Economists had predicted GDP growth of -0.1 to +0.3 percent.
Service sector as a pillar
The service sector once again proved to be the mainstay of the local economy. Industry, on the other hand, failed to make any headway because the international environment remained weak.
The varied development in the manufacturing sector continued: thanks to dynamic exports and sales, value added in the chemical-pharmaceutical industry in particular climbed by 1.2%. The pharmaceutical industry is generally quite resistant to economic fluctuations.
The more cyclically sensitive industrial sectors, on the other hand, developed only modestly in the third quarter, Seco wrote: turnover fell again in metal construction and mechanical engineering as well as in the manufacture of electrical equipment, while it stagnated in watchmaking and vehicle construction.
"These sectors are increasingly feeling the effects of weakening international demand," Seco continued. In the construction sector, value added fell slightly by 0.3. Turnover fell in building construction in particular.
Severe decline in the hospitality industry
The service sector lost some momentum from July to September. The retail trade again suffered losses (-0.5%). This means that the downturn in the retail sector has now lasted for seven quarters.
The hospitality industry suffered a significant setback (-3.7%) after some strong growth rates in the course of the recovery following the coronavirus pandemic. This was the first decline in over two years, wrote Seco.
The fact that the Swiss are once again traveling abroad much more is likely to have contributed to the dip. The number of overnight stays in this country stagnated, although foreign tourists returned to Switzerland in greater numbers. In addition, less money was spent in restaurants from July to September than in the previous three months.
In contrast, domestically oriented service sectors such as healthcare and social services or public administration grew (+0.7% each).
Weak private consumption
Government consumption (+0.5%) was the only domestic demand component to grow substantially. In contrast, private consumption (+0.2%) increased only moderately. In particular, the need for heating was significantly lower due to the warmest September on record. Consumer sentiment also deteriorated.
"As a small open economy, Switzerland is highly dependent on global economic developments," commented VP Bank Chief Economist Thomas Gitzel. For this reason, gross domestic product will not be able to make any great leaps for the time being. The surprisingly robust growth in consumption in the current year is also likely to weaken. Higher rent and electricity costs would reduce consumers' budgets.
KOF economist Klaus Abberger expects little tailwind for the Swiss economy in the winter half-year: "There are signs that the international economy is slowly gaining momentum. But the recovery process will be rather slow. Accordingly, the Swiss economy is also likely to be slow to pick up speed."
©Keystone/SDA
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