After five quarters of strong growth, the Swiss economy slowed abruptly in the 3rd quarter and economic output contracted by 0.2%. In the wake of the decline in international growth, Swiss foreign trade decreased. The appreciation of the Swiss franc in the meantime additionally slowed exports, while domestic demand also failed to stimulate growth.

The Expert Group forecasts that both the export and domestic economies will return to moderate growth after the weak 3rd quarter. However, the strong GDP growth rates of the first half of 2018 will no longer be achieved. Leading indicators at home and abroad also point in this direction. Nevertheless, due to the strong first half of the year, GDP growth for 2018 overall is likely to come in well above average at 2.6% (September forecast: 2.9%).

From 2019, the global economy will continue to normalise after the strongly expansionary phase of 2017 and 2018. The eurozone is expected to slow down slightly faster than assumed for the September forecast. Foreign demand for Swiss products will flatten out and the export economy will lose momentum. In view of declining capacity utilisation, investments of Swiss companies will increase less strongly than in 2018 and employment growth will ease.

Despite the situation on the labour market, which is due to remain very good overall (2019 unemployment rate: 2.4%), the outlook for private consumption in the first half of the forecast period is subdued. Recent muted wage developments and positive inflation are reducing households’ real purchasing power; consequently, the propensity to consume will remain low. Accordingly, the Expert Group has revised its expectations for domestic demand significantly downwards from the September forecast and is forecasting only moderate GDP growth of 1.5% for 2019 (September forecast: 2.0%). This comes along with lower inflation of 0.5%, curbed by the recent drop in oil prices, among other factors.

While the stimulus of foreign trade is likely to continue to weaken in the second half of the forecast horizon, domestic growth forces will gain in importance and bolster GDP growth in 2020. In particular, private consumption is set to gather pace again as real wages rise, and investment continues to grow robustly. The Expert Group is therefore forecasting slightly higher GDP growth of 1.7% for 2020. The economic slowdown will make itself increasingly felt on the labour market in 2020, with the unemployment rate due to rise slightly to an annual average of 2.5%. Meanwhile, inflation is expected to come in at 0.8%.

Economic risks
Negative risks clearly predominate for the global economy at present. If the trade disputes between the US and other major economic areas were to escalate further, the global economy and world trade would slow down faster than assumed in this forecast. This would affect Swiss foreign trade and the investment activity of companies could be adversely affected.

Political uncertainty remains high in Europe. In particular, it remains unclear what the relationship between the EU and UK will look like once Brexit comes into force in late March 2019. Internationally the high level of debt also harbours considerable risks. If monetary policy normalisation continues faster than expected, emerging economies in particular could again be affected by capital outflows and currency fluctuations due to rising interest rates. The Swiss franc could then come under stronger upward pressure with corresponding slowing effects on foreign trade.

The relationship between Switzerland and the EU is also clouded by a certain degree of uncertainty, for example in connection with the negotiations on the framework agreement. Should relations with the EU deteriorate significantly, this could also have a negative impact on companies’ investment activity. In view of simmering imbalances, the risk of a major correction in the Swiss real estate sector also remains.

Finally, there is a positive risk that the international and Swiss economies will pick up again, supported, for example, by the recent fall in oil prices.

*More detailed information on the Expert Group’s forecasts and the economic risks can be found in the quarterly publication “Konjunkturtendenzen” (“Economic Trends”), which is available online (www.seco.admin.ch/konjunkturtendenzen) and in printed form as a supplement to the political economics magazine “Die Volkswirtschaft” (www.dievolkswirtschaft.ch).

Swiss economy weakens