UBS economists expect “anemic” economic growth
- 30 Jan 2024 9:00 am CET
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According to UBS, the Swiss economy is unlikely to reach its full potential in the coming months. Stimulus from the global economy is not expected to return until the second half of 2025, according to an analysis by the big bank's economists.
According to the report published on Tuesday, they expect real economic growth (GDP) of 1.2 percent in 2024, followed by slightly higher growth of 1.5 percent in 2025. Weak foreign trade in particular will hamper domestic growth this year and at the beginning of next year.
For example, economists expect the US, an important trading partner, to experience an economic slowdown in 2024. Although the experts do not expect this to lead to a recession, they say it will not accelerate again until next year. China's economy is still suffering from a weak real estate market. According to the economists, an acceleration in the current year is therefore also unlikely there.
In Europe, the experts only expect the economy to recover "if inflation and interest rates fall significantly at the same time and the inventory cycle reverses". However, this is not expected to happen until the second half of 2024 at the earliest, or even 2025.
Against this foreign trade backdrop, economists do not see any signs of recovery for Swiss exports and therefore also for the local industry in the short term.
Sentiment in the service sector, on the other hand, is likely to remain good. Economists also assume that consumption will continue to be supported by persistently low unemployment and high net immigration in the current year, albeit to a lesser extent than in 2023.
Inflation driven by second-round effects
While inflation in the past two years was primarily driven by higher energy prices, two other factors are now having an impact on inflation: on the one hand, the weak economic development is dampening inflation. On the other hand, it is being driven by second-round effects resulting from the rise in rents and higher wages. Overall, the experts expect inflation to average 1.6% in 2024. With wage increases of 2 percent, this would lead to a slight increase in real wages.
The economists assume that inflation will range between 1.5 and 2 percent in the first half of the year, but then fall below the 1.5 percent mark in the second half. "The decline in inflation is likely to continue in 2025, albeit at a much slower pace," it says. The annual average inflation forecast for next year is 1.3 percent, which puts the inflation rate within the SNB's target range.
This means that the conditions for key interest rate cuts are in place. UBS economists expect the SNB to cut the key interest rate three times this year from June onwards, bringing it down to 1.00 percent by the end of the year. However, if the Swiss franc appreciates sharply, the SNB could also react more quickly, they believe.