Swiss options run thin as economy wilts

Swiss manufacturing faces a tough few months as European customers cut back on investments. Keystone

Economists predict that Switzerland faces several months of weaker economic growth having used up most of the trump cards it once played to insulate itself against global turmoil.

This content was published on September 9, 2014 - 15:00

Gross domestic product (GDP) growth stagnated completely in the second quarterExternal link of 2014, according to government statistics. Credit Suisse and economic forecasters BAK Basel both this week slashed their Swiss growth predictions from 2% to 1.4% for the year.

Outside forces have been blamed for the slump, most notably the Ukraine and Middle East crises and the continued slide of the weaker eurozone economies, such as France and Italy, that have dragged down Switzerland’s vital trading partner - Germany.

Swissmem, the body representing the electronic, fine tools and machinery manufacturing sectors, has already revealed that sales fell flat between from May through August as European customers tightened their belts.

Retail turnover shrank 0.6% in July compared with the corresponding month last year as conditions also soured for stores.

Not so special

Switzerland gained an enhanced reputation for  sound economic and fiscal management in the wake of the 2008 financial crisis, keeping its head well above water as many other Western economies sank beneath the waves.

But conditions are less optimal for Switzerland this time around, according to Felix Brill, chief economist at consultancy firm Wellershof & Partner.

“The factors that made Switzerland a special case in Europe have diminished,” he told “Net immigration rates will probably decline as a result of February’s vote [which approved an initiative] to restrict EU workers and this will have a dampening effect on real estate prices and construction.”

Furthermore, Brill believes that the domestic consumer boom of the last two years - fuelled by cheaper imports as the Swiss franc rose in value against other currencies - will likely fade now that the franc has been held stable against the euro and retailers have already completed their downward price adjustments.

Credit Suisse also believes that domestic consumer growth - a fundamental pillar of Switzerland’s relative economic security in the past six years - will diminish from 2.3% in 2013 to 1.2% this year and 1% in 2015.

The bank stated on Tuesday that a recent Swiss economic “super-cycle” boomExternal link, fuelled by rock bottom interest rates, rising house prices and high immigration rates, “is coming to an end”. The slow recovery of Swiss exports from their previous slump would not be enough to compensate, Credit Suisse warned.

Mortgage lending restrictions imposed on domestic banks by the Swiss National Bank (SNB) will partially cancel out the effect of low interest rates that have been heating up property prices. House prices and wider economic growth could be dragged back further by anti-mass immigration votes, Credit Suisse concludes.

Foreign market intervention?

Stagnant European economic conditions, coupled with a recent decision by the European Central Bank (ECB) to further reduce interest rates, have led to media speculation that the SNB will again have to buy up large quantities of euros to defend the CHF1.20 exchange rate peg.

Speaking to the NZZ am Sonntag newspaper, SNB chairman Thomas Jordan refused to be drawn on such questions other than to say the central bank would continue to defend its policy. But he added his own warnings about the worsening state of economic conditions.

“New geo-political risks have emerged and international economic data, particularly from Europe and South America, has been weaker than we expected,” he told the newspaper. “The situation for Switzerland has clearly worsened.”

However, Swiss economists are not convinced that the SNB will have to intervene on the foreign exchange markets any time soon.

“I am working on the base scenario that the SNB does not have to intervene,” Alessandro Bee, economist at J Safra Sarasin told “Unlike a few years ago, investors can now move into the US dollar where the interest rate situation is much more interesting than in Switzerland.”

Bee is also more upbeat than other economists on the overall outlook for the Swiss economy. “The external situation is worsening and exports may suffer as a result,” he said. “But domestic demand, the engine of growth that has supported the Swiss economy for the last few years, will recover as long as unemployment stays low.”

And here at least, Switzerland still holds a trump card over other countries. The jobless rate currently stands at 3% and is expected to reach no higher than 3.2% by the end of the year, according to economists.

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