No boom in sight: Swiss economy only recovering slowly
Published: Wednesday, Sep 25th 2024, 13:30
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According to economic researchers at ETH Zurich (KOF), the economic recovery in Switzerland is proceeding more slowly than hoped. The main reason for this is the weakening German economy.
The Swiss economy should actually be growing by almost 2% at the moment. The KOF has calculated this on the basis of immigration and technological progress, among other things.
However, such a figure was clearly missed in 2023 and is also unrealistic for the current year. "And we will only come close to such growth rates in 2025 and 2026 as well," said KOF Director Jan-Egbert Sturm on Wednesday at the presentation of his institute's fall forecast.
There are therefore only signs of "normalization". "But there is no real boom in sight."
On the contrary, the KOF has lowered its forecasts slightly. For 2024, it now expects growth in real gross domestic product (GDP, adjusted for sporting events) of 1.1% instead of 1.2% and 1.6% instead of 1.8% for 2025. The initial forecast for 2026 is 1.7 percent.
Germany slows down
The main reason for the only bumpy recovery and the slight downward revision is the economic development in the eurozone and in Germany in particular. "Europe is slowing down Swiss momentum," says Sturm.
The Swiss export industry is suffering as a result, particularly the machinery, electrical and metal industries. The KOF assumes that exports will virtually stagnate until next spring and will only pick up speed after that. In addition, Swiss companies are holding back on investments in new machinery and equipment.
Inflation decreases
Nevertheless, according to Sturm, companies' continued positive expectations point to a gradual economic recovery. Other rays of hope are the solid development of the labor market and the slowdown in inflation.
The inflation forecast for 2024 was lowered slightly to 1.2 percent from 1.3 percent and more significantly to 0.7 percent from 1.0 percent for 2025. In 2026, it is also seen at 0.7 percent.
More money in your wallet
Real wage growth can therefore be expected in all three years, said the KOF Director. Specifically, he expects real wage growth of up to 0.9 percent for 2024 to 2026. In other words, consumers will have more money in their wallets even after deducting inflation. As a result, private consumption will remain a pillar of the economy.
According to the KOF, the 13th AHV pension, which was recently approved by the people, could give an additional small boost to consumption towards the end of the forecast period. However, if this extra pension were to be financed via VAT, the KOF believes that this would also fuel inflation somewhat.
As usual, the KOF emphasizes the risks for the forecast. The war in Ukraine, and in particular the conflict in the Middle East, could have a major impact on both economic development and inflation if it escalates further. There are also deglobalization risks - not least in view of the upcoming US elections.
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