Swiss Economy: Lack Of Growth Drivers; Energy Crisis Has Only A Limited Impact On Industry

Thanks to robust consumption, Switzerland is not at risk of recession. Nevertheless, economic growth is slowing significantly compared to last year. Credit Suisse economists are forecasting gross domestic product (GDP) growth of 0.8% in 2023, compared to 2.1% in 2022. With inflation set to remain above the target range until mid-2023, the Swiss National Bank (SNB) is likely to raise key interest rates to 2.25% overall. Although the energy crisis is having a noticeable impact on some energy-intensive sectors, in-depth analysis shows that the overall effect on Swiss industry is less significant compared to other European countries.

The outlook for private consumption in Switzerland is supported by a consumer-friendly situation in the labor market. The rate of unemployment is at its lowest level in over 20 years, while high levels of job security are having a positive influence on consumer sentiment. In addition, Switzerland is continuing to experience brisk levels of immigration. At the same time, the surge in inflation is restricting consumers’ purchasing power; a 2.3% increase in employee pay therefore failed to offset the loss of purchasing power caused by inflation running at 3.2% in the second half of 2022. A real decline in the total wage bill has been an extremely rare occurrence in the last 30 years and the decrease is set to continue in the first half of 2023. As a result, overall consumer growth will be significantly weaker this year than in 2022 (1.4%, versus 4.0% last year). From mid-2023 onwards, inflation will return to the 0% to 2% target range set by the SNB, in part because the central bank will have raised its key interest rate to 2.25% (inflation is forecast to average 2.2% in 2023).

Export sector hit by slow global economic growth
The country’s export sector, meanwhile, is being hit by sluggish demand from abroad. Nevertheless, some of these growth-inhibiting factors have eased somewhat lately. The lifting of COVID-19 restrictions in China will boost economic growth there in the first half of 2023 and this will also have a positive impact on the rest of the world in the second half of the year. In addition, the euro zone will probably be able to avoid a recession given that the energy situation has improved slightly. At the same time, high inflation and the interest rate reversal are placing tight constraints on global growth for the time being. Although the Credit Suisse Export Barometer – which measures economic performance in key destination markets for the Swiss export sector – has recently brightened again slightly, purchasing manager indices (PMIs) for industry are still below the growth threshold virtually across the board. The PMI for Swiss industry was also below the growth threshold in February for the second consecutive month – albeit not by much in comparative terms. All the same, an easing of the purchasing situation is underway with only 5% of companies in Switzerland reporting longer waiting times than in the previous month. This is significantly less than in the first half of 2022, when over 80% of companies repeatedly reported longer delivery times. The increase in exports as well as capital spending on machinery and exports is likely to be below average this year at 3% and 1%, respectively.

Swiss industry less affected by energy crisis than in other European countries
Although the worst-case energy shortage scenario was avoided this winter, the risk is set to increase again next winter. In the Focus article of the latest Monitor Switzerland, Credit Suisse economists show which sectors in Switzerland are particularly exposed to the energy crisis by looking at various factors such as energy intensity, energy as a proportion of total costs, as well as indirect dependencies in supply chains and energy imports. Compared to its European counterparts, Swiss industry as a whole is, however, better positioned to successfully withstand the energy crisis. A lower degree of energy intensity, coupled with the fact that energy accounts for a smaller proportion of total costs, plus the local sector mix, are factors working in the country’s favor. Potential vulnerabilities arise indirectly due to the dependence on imports in the value chain as well as in energy supply. It is worth noting that energy intensity in Switzerland and Europe has generally decreased significantly over the past 20 years and will continue to decline in the future as a result of the pressure caused by the energy crisis.