Swiss economic activity is expected to pick up modestly in the quarters ahead.
The Swiss National Bank is again seen on the fence between a 25bps cut and a hold at its June meeting, after inflation surprised to the upside in April but printed as expected in May. Economic activity in Switzerland appears not to warrant a decision to cut on June 20th, as it again has been solid – even though the industrial sector saw a weak Q1, stronger services (trade and hospitality in particular) more than made up for that, to yield an overall growth of +0.3% Q/Q on a sporting event-adjusted basis.
- Economic Activity: Economic growth momentum appeared by most indicators to be moderate in Q1. Analysts generally see activity picking up to some extent in the coming quarters.
- Real GDP increased 0.3% Q/Q in Q124, driven, again, by a strong services sector. Sectoral indicators point towards weak industrial and construction activity – sentiment in manufacturing has continued to broadly trend upwards recently, however.
- Labour market: The Swiss labour market is undergoing some gradual softening after pronounced tightness in the post-pandemic period. This softening is projected to continue somewhat going forward.
- Inflation: Headline inflation stalled in May after jumping to 1.4% Y/Y in April. The “housing and energy” category contributed almost 1.0pp to that figure after an uptick in the rental price index. Imported inflation, however, did not continue its upward trend in May.
- The SNB has concluded that the fight against inflation has been effective in its March meeting – and headline CPI is seen staying below 2% in the medium term, regardless of the April jump.
- Monetary Policy: The economic backdrop leaves the SNB again on the fence between a 25bps cut and a rate hold in on June 20th, in the follow-up meeting from its surprise 25bp rate cut in March. A change in its FX communications is not to be expected yet.
- Foreign Exchange: The Swiss Franc has seen multi-year record depreciation against the Euro during the first 5 months of 2024, after interest rate cut expectations in the Eurozone continuously got priced further out amid sticky inflation in the bloc. This has partially reversed recently, with EURCHF coming down from levels above 0.99 to a current 0.96, helped by some rather hawkish comments by SNB President Jordan.
- Medium-Term Outlook: From a broader perspective, the Swiss economy seems to have maintained stability but lacks strong momentum. Analyst forecasts for 2025 GDP growth have remained almost unchanged recently.
Full PDF Analysis:
2024_06_Switzerland_Macro_Signal.pdf
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