Breaking News
Investing Pro 0
Free Webinar - Crude Oil Trading 2023 | Thursday, February 9, 2023 | 01:00PM PST Enroll Now

Switzerland’s Solid Recovery Is Set To Weaken Significantly

www.investing.com/analysis/switzerlands-solid-recovery-is-set-to-weaken-significantly-200619213
Switzerland’s Solid Recovery Is Set To Weaken Significantly
By ING Economic and Financial Analysis   |  Mar 03, 2022 05:20AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Swiss GDP continued to recover in the fourth quarter of 2021, concluding a very strong year. The fundamentals for growth were strong in early 2022, but the war in Ukraine is clouding the outlook. The Swiss National Bank will probably wait to change its monetary policy.

2021: a good economic year for Switzerland with a booming industry

In the fourth quarter of 2021, Swiss GDP grew by 0.3%, after 1.9% in the third quarter. As expected, the recovery continues in Switzerland, although it slowed in the fourth quarter due to health restrictions. As a result, GDP increased by 3.7% in 2021, following a 2.4% decline in 2020. At the end of the fourth quarter of 2021, GDP was 2% above its pre-crisis level, a better performance than its European neighbors.

Over the year, Swiss manufacturing has done very well, with activity increasing by 11.2% after a 3% decline in 2020. This situation contrasts sharply with the rest of Europe where disruptions in supply chains have severely hampered industrial production. One reason for this difference is the importance of the chemical and pharmaceutical sector in Switzerland, which accounts for more than 43% of Swiss manufacturing output and has been much less affected by supply problems.

At the end of 2021, production in the chemical and pharmaceutical sector was 20% higher than its pre-crisis level, while the rest of industrial production was 4.4% higher than its level at the end of 2019. On the demand side, the strength of industry allowed Swiss exports to perform very well in 2021, increasing by 13.3% over the year (for exports of goods without valuables and transit trade).

Despite several periods of health restrictions during the year, household consumption also picked up in 2021 to end the year 0.9% above its pre-crisis level. The very strong labor market, with an unemployment rate of 2.4% at the end of 2021, provides significant support for consumption.

Swiss GDP performed better than its European neighbors

Swiss GDP Performance
Swiss GDP Performance

Strong fundamentals at the start of 2022, but the war clouds the outlook

The year 2022 started well for the Swiss economy, still expanding even as the pace of growth normalized. The KOF leading indicator stood at 105 in February, well above its long-term average of 100, although down slightly from 107 in December.

The composite PMI was still at a very high level of 62, signaling a strong expansion. Unfortunately, these indicators do not take into account the latest geopolitical developments, which will have a significant impact on the Swiss economy: growth will be lower and inflation higher. As a result, we have revised our growth forecast downwards from 2.9% to 2.5% for 2022.

For the time being, we do not foresee a recession. Driven by energy prices, inflation will increase more than expected and should average 1.7% for 2022, compared to the previous forecast of 1.2%. Compared to neighboring countries, inflation in Switzerland is expected to remain more moderate (although up sharply from 0.6% in 2021), due to the strengthening of the Swiss franc, which dampens imported inflation.

The SNB on hold

It is in this difficult context that the SNB will have to decide on the next steps in its monetary policy. On the one hand, continued growth (albeit less dynamic than previously expected), a very strong labor market and rising inflation, in line with its target, should push the SNB towards a normalization of its policy.

But on the other hand, the very strong appreciation of the Swiss franc since the beginning of the war in Ukraine due to its safe-haven character will encourage the SNB to be very cautious. Given the current low risk of deflation, the appreciation of the Swiss franc is probably considered by the SNB to be less problematic than in the past.

Nevertheless, it is unlikely that the SNB will reinforce appreciation trends by raising interest rates in such an environment. As a result, we believe that the SNB will maintain its 'wait-and-see' attitude at its March meeting and will not change monetary policy until the impact of the Ukrainian conflict on the economy and the markets is clearer.

It will therefore maintain its key rate at -0.75 and continue to intervene in the foreign exchange market when it deems it necessary. Going forward, we continue to expect the SNB to raise rates before the end of the year, probably in December 2022.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

Switzerland’s Solid Recovery Is Set To Weaken Significantly
 

Related Articles

Switzerland’s Solid Recovery Is Set To Weaken Significantly

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email