Swiss economy is still growing, stagnation is on the horizon

The Swiss economy has developed surprisingly well this year. This is now also shown by data for the third quarter, which the State Secretariat for Economic Affairs (Seco) published on Tuesday. In the summer quarter, real gross domestic product (GDP) grew by 0.2 percent. In the first and second quarters, economic output increased by 0.3 and 0.1 percent respectively.

Private consumption supports the economy

This good development was not foreseeable at the beginning of the year. On February 24, Russia launched a war of aggression against Ukraine. There was concern that the consequences could put a heavy strain on the economy in Europe. In addition, Switzerland and other European countries were still in the midst of a strong corona wave in the winter months. Hardly anyone in Europe is now thinking about corona restrictions, but at the beginning of the year it was not obvious that the measures could be relaxed so quickly and permanently.

The abolition of the corona measures is also an important reason why the Swiss economy grew robustly until autumn. Above all, private consumption supported economic development, because people were able to travel more and consume abroad again.

In Switzerland, the increase in inflation hardly slowed consumer spending. This is also due to the fact that the situation on the labor market was excellent until recently. The unemployment rate is at its lowest level in two decades, skilled workers are in demand, and some employees are switching to better-paid jobs. Because at the same time immigration to Switzerland is high, the total wage bill increases noticeably: there is more money to spend overall. At +0.7 percent, private consumption again rose at an above-average rate in the third quarter.

slowdown in industry

In Switzerland, the export-oriented industry has felt the economic problems the most over the past few months. In their most important sales markets in Europe, it has been expected since spring that the economy will soon cool down. The prospects for Swiss industry have also gradually clouded over. Nevertheless, contemporary indicators such as surveys of purchasing managers indicate that industry in Switzerland is continuing to grow slightly – so there is no sign of a contraction so far.

No recession in Switzerland

Will the recession come now? This question has been driving economic observers for months. For Switzerland, for example, weekly GDP data show that economic activity may indeed have cooled off somewhat in October and November.

However, most economic observers do not expect that Switzerland will fall into a recession this winter. The consensus is that GDP is likely to be flat in Q4 2022 and Q1 2023. After that it should go up again. Whether the Swiss economy will technically enter a recession, defined as two quarters of contraction in GDP, is likely to be of secondary importance. It seems clear that the Swiss economy will move more or less sideways until spring, before hopefully the upswing comes.

Much depends on the energy supply

The decisive question in winter will be whether there will be an energy shortage. If natural gas or electricity had to be rationed, this would possibly put a heavy strain on the economy in Switzerland and Europe. In this case, most observers expect a recession in Switzerland as well. However, the prospects have brightened up recently. Because politicians have made preparations and companies have adapted, Europe could get through the winter without rationing natural gas and electricity.

Some optimism has recently spread even in Germany. In November, the companies surveyed by the Munich Ifo Institute were slightly more confident about their business for the first time in months. A recession is still expected for the largest economy in the euro area in winter. “The recession is likely to be less deep than many expected,” said Ifo boss Clemens Fuest. This is also a good sign for Swiss industry, which is closely intertwined with Germany.