Swiss economy receives support from Europe according to KOF
Published: Monday, Jun 17th 2024, 09:20
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According to economic researchers at ETH Zurich (KOF), the hoped-for upturn in the Swiss economy will soon become a reality. Support is coming from Europe.
The KOF predicts that the recovery will begin in the second half of the year. Specifically, it expects real gross domestic product (GDP, adjusted for sporting events) to grow by 1.2 percent in 2024 as a whole, but then by 1.8 percent in 2025, according to a statement issued on Monday.
The reason for the emerging recovery is the development in Europe. According to the KOF forecast, the situation should brighten up in Germany, France and Italy in particular. Rising consumer spending and increased investment activity can be expected there.
Better prospects for industry
As is well known, the recent below-average development in these countries had slowed down the Swiss export economy. Now, however, export momentum is picking up again, according to the KOF. It expects exports of goods and services (excluding valuables) to grow by 2.9% in 2024 and 2.7% in 2025. As a result, according to the forecasters, value added in the manufacturing sector should also increase again after recent weak quarters.
Additional support comes from inflation, which the KOF now expects to be lower (1.3% in 2024, 1.0% in 2025). This lower inflation is expected to lead to real wage growth, which should offset the real wage losses of the last two years. Meanwhile, the labor market is still robust, albeit no longer as dynamic as in the last three years.
According to the KOF, the development of inflation also allows for further interest rate cuts by the Swiss National Bank (SNB). It expects to cut the key interest rate to 1.25 percent next Thursday and then to 1.00 percent in March 2025. This would also help the economy.
Wars as a factor of insecurity
As usual, the KOF emphasizes the risks to the forecast. For example, unexpectedly strong second-round effects of persistently high inflation in the eurozone and the USA could cloud the optimistic outlook. On the positive side, however, an unexpectedly sharp fall in inflation in these two economic areas could boost purchasing power and private consumption. The wars in Ukraine and the Middle East are also a factor of uncertainty.
The forecast for Switzerland's reported GDP is somewhat different. Here, the forecasts are 1.6% for 2024 and 1.4% for 2025, although these figures are distorted by major sporting events such as the Olympic Games and the European Football Championships. This is due to the license payments to the international sports federations based in Switzerland, which do not provide any information about the economic trend.
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