• Swiss economy likely to grow 2.2 pct next year, domestic demand growth to remain strong in years ahead

    Source: FxWire Pro - Commentary / 21 Nov 2017 13:00:51   Eastern Standard Time

    Switzerland’s economy is growing, but at quite a moderate rate. Last year the Swiss economy grew 1.4 percent after expanding 1.4 percent in the prior year. This is a bit lower than the potential output growth rate of 1.5 percent. Sluggish economic growth has continued in 2017. In the initial six months of this year, the Swiss economy expanded just 0.3 percent from the last six months of 2016. For the year as a whole, the economy grew just 0.9 percent. The slow rebound is mainly because of the strength of the Swiss franc, which has been a drag on the competitiveness of Swiss industry. The real effective exchange rate of the franc rose almost 20 percent.

    But there have been some ray of home in recent months for the sectors that rely most on external demand, as the effective rate has been depreciating and global trade has been strengthening again. In the first half of 2017, manufacturing output rose 2.4 percent compared to the second half of last year. Activity in the large financial sector is bottoming out. On the contrary, activity in most other services branches has continued to be subdued.

    Due to subdued output growth, the labor market has improved just marginally. Even if the number of employed persons has increased robustly in recent months, employment in full-time equivalent has stayed stagnant as losses in manufacturing were countered by job creation in the services sector.

    The jobless rate in the nation dropped to 4.4 percent in the second quarter, Consumer price inflation has been quite weak in recent years, mostly due to the strength of the currency and the drop in commodity prices. But since the start of the year, core inflation has steadily risen to 0.5 percent in October. Service prices have mainly driven inflation.

    According to a BNP Paribas research report, the Swiss economy is likely to grow 2.2 percent next year and then ease to 1.9 percent in 2019. Business cycle indicators are indicating towards strengthening activity in the months ahead. The manufacturing activity in Switzerland is being underpinned by the solid rebound in Europe and the stable depreciation of the Swiss franc against the EUR.

    Domestic demand growth is likely to stay strong in the years ahead. Consumer spending is expected to expand 1.5 percent in 2018 and 2019, stated BNP Paribas. Furthermore, investment spending is expected to rebound as capacity shortages have surfaced.

    Meanwhile, Swiss exports are being boosted by robust economic growth in Europe and the U.S. Furthermore, the devaluation of the Swiss franc is expected to improve the nation’s competitiveness. This will also improve the country’s position as tourist destination. Inflation is likely to stay quite moderate at 0.5 percent in years ahead, added BNP Paribas.

    At 17:00 GMT the FxWirePro's Hourly Strength Index of Swiss Franc was neutral at -49.0009, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -39.3934. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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