Swiss GDP growth likely to be below average again in 2024
Published: Thursday, Dec 28th 2023, 10:01
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The Swiss economy is once again likely to fall short of its growth potential in 2024. After a weak 2023, this would be the second year in a row with below-average growth.
The end of the year was characterized by declining but still high inflation and corresponding interest rate hikes by central banks, particularly in the first half of the year. In addition to Russia's ongoing war of aggression against Ukraine, the Hamas attack on Israel in October was another geopolitical source of danger.
In this difficult environment, Switzerland has held up reasonably well recently, while its important trading partner Germany, for example, has been teetering on the brink of recession for some time. Even though the figures will not be published until the end of February, experts assume on average that Switzerland's real gross domestic product will have reached at least just under 1% in 2023.
From today's perspective and according to experts, 2024 is likely to be slightly better, but the long-term potential growth of around 2% will probably not be achieved again. Economists surveyed by the news agency AWP estimate average real GDP growth of around 1.2%, with the lowest estimates at 0.8% and the highest at 2.0%.
Subdued foreign demand
The figures for 2024 will be somewhat distorted by major sporting events such as the Summer Olympics in Paris and the European Football Championships in Germany. As is well known, the IOC and UEFA, the organizers of these events, have their headquarters in Switzerland, meaning that the corresponding licensing income will push the local growth rate up slightly. If these events are factored out, the result is what is known as sports event-adjusted GDP growth. This is usually estimated to be just under half a percentage point lower.
The Swiss National Bank (SNB) is one of the more cautious voices for the coming year. Growth is likely to be weak in the coming quarters, said SNB President Thomas Jordan just recently as part of the monetary policy assessment. The restrained demand from abroad and tighter financing conditions, i.e. higher interest rates, will have a dampening effect. Accordingly, unemployment is likely to continue to rise slightly and the utilization of production capacity will continue to decline.
According to experts at the State Secretariat for Economic Affairs (Seco), the subdued momentum in the eurozone in particular is likely to slow down the exposed areas of the domestic export economy next year. In view of falling capacity utilization and higher financing costs, investments are also likely to develop only weakly. By contrast, private consumption is likely to be an important supporting factor, especially as employment is likely to continue to rise slightly and the increase in unemployment is likely to be limited.
Geopolitical risks
However, both the SNB and Seco emphasize the major risks in their forecast. This relates above all to the development of the global economy, which is a key growth factor for a small, open economy like Switzerland. According to the SNB scenarios, inflation could remain high in some countries and necessitate a further tightening of monetary policy, while the energy situation in Europe could also worsen over the course of the winter.
Meanwhile, Seco is also emphasizing the geopolitical risks that have intensified with the outbreak of armed conflict in the Middle East. An escalation here - for example with disrupted supply chains in the Red Sea - could be accompanied by rising oil prices and correspondingly rising inflation rates, according to the report. A correspondingly more restrictive monetary policy would then further curb demand.
Only the ZKB has a significantly more optimistic GDP forecast than the other forecasters. Its chief economist for Switzerland, David Marmet, estimates real GDP growth of 2% for the coming year and cites several reasons for this. For example, the growth contributions of non-cyclical sectors such as gold trading, transit trading and pharmaceuticals are high.
He is also assuming dynamic population growth once again - after around 150,000 people in 2023, he expects more than 100,000 additional people in 2024. And last but not least, the Federal Statistical Office (FSO) has revised the Seco figures upwards in recent years, which in his opinion is unlikely to change much in the future.
©Keystone/SDA
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