Economic Outlook no. 1189-1190 |Macroeconomic, Risk and Insolvency Outlook
Switzerland Partly decoupled Country Risk Level LOW
Overview After a weak Q2, the Swiss economy returned to its growth trajectory in Q3, with GDP climbing by a solid +0.6% q/q. Given the global strain being exerted by the EZ debt crisis and the strength of the Swiss franc, this came as a positive surprise. Impetus was generated by private and public spending, although capital spending and the net foreign trade deficit exerted a drag. Still, the figures for a single quarter should not be overrated as the outlook for growth has deteriorated substantially. The decline in the global economy combined with sustained uncertainty is taking its toll on capital spending and exports in particular. As a result, GDP growth is likely to come to only +0.9% in 2012 and +1.0% in 2013, down from 1.9% in the previous year. We forecast an increase to 1.7% in 2014.
Foreign trade is set to improve. Swiss exports climbed by +0.5% q/q in the Q3, thus in fact exceeding the previous quarter (+0.4% q/q). Although the frag- ile global economy and muted condi- tions in the country’s main trading partners exerted pressure, the fact that the dampening effects caused by the strength of the Swiss franc weakened with the receding safe-have effects pre- sumably also played a role. As imports grew at a substantially faster rate, the resultant net exports shaved +0.8 pp off economic growth. Exports and also net exports will be down in 2012 as a whole. 2013 is likely to see only a mod- erate rebound in exports, although they should recover appreciably in 2014 as demand from the country’s main trading partners picks up.
Growth in consumer spending should be weaker in the short term. Consumer spending was not quite able to repeat the reasonably strong growth rates achieved in earlier quarters but still expanded by +0.1% q/q in Q3, thus acting as a bolster for growth. This was not least of all due to what by interna- tional standards was the solid state of the labour market with a substantial increase in employment accompanied by only modest wage and salary gains. Despite the expected temporary wors- ening of conditions in the job market and weaker demand, the situation is characterised by a favourable underly-
26
ing trend which, underpinned by the greater purchasing power as a result of lower consumer prices, should be reflected in a full-year increase of +2.1% in 2012, up from +1.2% in 2011. After slowing to +0.9% in 2013, we expect consumer spending to acceler- ate by +1.3% in 2014.
Capital spending should be limited in 2013. Given the muted and uncertain outlook in most European countries, companies exercised pronounced spending restraint, with spending on capital goods down for the second con- secutive quarter, declining by -1.2% q/q in Q3. On the other hand, construction spending remained buoyant (up +0.3% q/q). The outlook is depressed for now: after the sharp +4.0% increase in the previous year, the rate of growth in overall capital spending has slowed markedly to +0.4% in 2012 and is also likely to be limited in 2013. As global conditions gradually stabilise accom- panied by relatively favourable fund- ing conditions, capital spending should rebound considerably in 2014. Against this backdrop, the number of insolvencies will rise by +2% in 2012 and may even reach a new record. We expect insolvencies to ease slightly in 2013.
Public sector finances are well ori- ented. Public sector finance remains very favourable compared to other
advanced economies. The budget sur- plus may decrease slightly from +0.5% of GDP in 2012 to an expected +0.3% in 2014 due not least of all to economic stimulus measures. Under these con- ditions, public-sector debt will decline steadily and should come to 36% of GDP in 2014._RG
To watch…
>The euro/franc exchange rate. >Trends in the capital spending climate and order receipts, particularly foreign orders. >Swiss bank ratings._