KOF sees Switzerland held back by global economic weakness
Published: Tuesday, Mar 26th 2024, 10:20
Updated At: Tuesday, Mar 26th 2024, 10:10
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Economic researchers at ETH Zurich (KOF) believe that the Swiss economy continues to be held back by the weak global economy. The decline in investments is also a damper. Nevertheless, the labor market remains robust.
According to its latest forecast from Tuesday, the KOF expects real gross domestic product (GDP) to grow by 1.6% in 2024 (December forecast: 1.7%). Growth of 1.4% is forecast for 2025. This figure has not been revised compared to the last forecast. While the manufacturing industry remains under pressure for the time being, support is coming from some service sectors.
Excluding the effect of major sporting events, which are known to have an impact on local GDP, the expected growth rates are 1.2 percent (2024) and 1.8 percent (2025).
SNB likely to cut interest rates further
With regard to monetary policy developments, the KOF experts expect the Swiss National Bank (SNB) to cut interest rates again in September. They estimate that the key interest rate will then fall to 1.25 percent. In March next year, the key interest rate is then expected to fall again by 25 basis points. The inflation outlook would also continue to improve in the USA and the eurozone, making interest rate cuts possible. The ECB is likely to take the first step in June, followed by the Fed in July.
Meanwhile, the inflation forecast for Switzerland has been lowered slightly to 1.6% for 2024 and increased slightly to 1.1% for 2025. Previously, experts had forecast inflation of 1.7% for the current year and 1.0% for 2025.
Private consumption burdened by healthcare costs
Meanwhile, rising healthcare costs in particular are weakening purchasing power and thus weighing on private consumption. The general rise in prices, particularly in the first half of the year, is also having a negative impact. Major purchases due to the prevailing economic and geopolitical uncertainties are being made only hesitantly. However, the KOF economists expect private consumption to improve in the coming year.
According to the experts, the labor market, which is still in good shape, is providing support. The outlook is also positive - forecasts point to continued solid employment growth. In addition, after a phase of falling real wages, real wages are likely to return to positive growth both in the current year and especially in 2025.
According to the KOF, a major risk for the forecast, in addition to the danger of an escalation in the conflict regions, is the development of the core inflation rate. If this does not fall any further, central banks would be forced to refrain from cutting interest rates in order to keep inflation under control. This could jeopardize the expected recovery in global economic demand. Added to this is the uncertainty surrounding the outcome of the US presidential elections.
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