Switzerland Macro Signal – August 2024

The Swiss economy enjoyed solid growth in Q2 on the back of a strong rebound in industrial activity, in contrast with weak Eurozone momentum. But a softening Swiss labour market, subdued consumption, and stable inflation should allow the SNB to ease policy further by year-end.

PDF Analysis Below:

2024_08_Switzerland_Macro_Signal.pdf

• Economic growth momentum appears solid by most indicators in Q2. Analysts generally see activity picking up further in Q3.
• Real GDP increased 0.5% Q/Q in Q2, with both services and manufacturing contributing positively, but the latter being the main upside driver according to preliminary data. The retail sector appears comparatively weak.
• The Swiss labour market is softening across a wide variety of indicators following the pronounced tightness during the post-Covid period. Employment growth has been tapering off, the unemployment rate is gradually moving higher, and wage gains are also slower than before.
• Headline inflation was largely stable recently, remaining firmly within the SNB’s price stability target range. The August inflation round will see a rental price update, which provides potential for some temporary acceleration in inflation – which afterwards is expected to decline again in the medium term.
• The economic backdrop leaves the SNB with some room to cut interest rates further after consecutive cuts in its meetings earlier this year. Market expectations, rather than on domestic data, appear to have largely moved more dovish on an updated global narrative re imminent rate cuts, however – the next SNB meeting will be in late-September, for which markets currently price around 33bps of easing.
• The Swiss Franc has strengthened again recently, with EURCHF gradually moving back towards its early August multi-year high, currently standing at around 0.94. Further strengthening might warrant SNB intervention at some point.
• From a broader perspective, the Swiss economy seems to have maintained momentum during the recently challenging international demand environment, in contrast with neighbouring Germany. Analyst forecasts for GDP growth in the remainder of 2024 have partially improved.