UBS expects the economy to recover in 2025
Published: Tuesday, Jul 9th 2024, 10:10
Updated At: Tuesday, Jul 9th 2024, 11:20
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The economists at UBS confirm their forecasts for Swiss economic growth in 2024 and 2025. However, Switzerland's status as a model student of economic policy is being put to the test.
Specifically, UBS continues to expect economic growth of 1.3 percent for 2024. And for 2025, the economists continue to expect growth of 1.5 percent. Adjusted for major sporting events, which distort GDP due to license income for the sports associations based here, the forecasts are +0.9 percent for 2024 and +1.6 percent for 2025.
The Swiss economy, and industry in particular, is likely to continue to suffer from the weak economy in the eurozone in the second half of 2024, UBS economist Florian Germanier said at a media conference on Tuesday.
Inflation and health insurance a burden
From 2025, however, industrial production and investments are expected to gain in importance again. Although private consumer spending would continue to grow modestly, it would no longer be the driving force behind the Swiss economy.
On the one hand, the catch-up potential after the pandemic has now finally been exhausted, explained the UBS economists. On the other hand, income will be burdened not only by inflation but also by a sharp rise in health insurance premiums.
Unemployment in Switzerland will also rise slightly in the coming quarters, but only to a small extent. The biggest risks for the Swiss economy are a strong global price increase and the various geopolitical uncertainties.
Another SNB interest rate cut
According to the big bank, inflation will only fall slowly due to second-round effects. UBS expects average annual inflation of 1.2 percent in 2024 and 1.0 percent in 2025. Inflation will therefore be significantly higher than in the last decade.
Nevertheless, this will not prevent the Swiss National Bank (SNB) from lowering the key interest rate once again. UBS expects a final rate cut of a quarter of a percent to 1.0 percent, probably in September. However, the exact timing will depend on the development of inflation and the Swiss franc.
Tapping the potential of the labor market
Meanwhile, UBS economist Alessandro Bee was left to highlight the challenges facing the Swiss economy. At first glance, the country appears to be exemplary in terms of growth, exports and fiscal policy.
"At second glance, however, there are also challenges in these areas," said Bee. For example, the Swiss economy has grown by almost 50 percent in real terms over the last quarter of a century. In terms of per capita growth, however, Switzerland is falling behind.
Bee believes that growth could be strengthened with a higher labor market participation rate. For example, Switzerland has the second-highest proportion of part-time workers compared to EU countries. And at around 12%, the employment rate of over-65s is only half as high as in the USA.
"Making better use of the domestic labor market potential and extending working life would contribute to a sustainable national budget," said Bee. This is important because demographic change also poses major challenges for the welfare state and therefore for fiscal policy.
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