Switzerland: GDP growth drops to 0.6% in 4Q16 - ING

Figures published this morning showed that the Swiss economy grew by a meagre 0.1% QoQ in 3Q16 and 4Q16, leaving the annual growth rate at only 0.6% at the end of the year as noted by the Julien Manceaux, Senior Economist at ING.

Key Quotes

“The Swiss economy rebounded as expected in Q2, after a rather weak first quarter. In 2016, growth reached 1.4% after 0.8% in 2015, well below the Eurozone average of 1.7%. For this year, we think that domestic demand will recover but that a strong growth acceleration will only take place in 2018, mainly because of the renewed CHF strength.”

“In 2016, GDP growth will have been limited to 1.3%. Net exports overall contributed positively to GDP growth in 2016, although not in the second semester. One should notice that export (outside valuables) growth has remained relatively weak in 2016, even contracting by 3.8% QoQ in the last quarter of the year. Therefore, the positive contribution posted in 2016 overall was rather due to the very slow import growth (0.2% QoQ in 4Q16) which itself reflected the bad shape of the domestic economy.”

“If the drop in exports was the main engine behind the end of year slowdown, private consumption rebounded strongly in 4Q16 by 0.9% QoQ after two quarters of near stagnation. This was expected as consumer confidence has recently improved strongly while employment growth has stopped declining. However, it still has to be translated into higher retail sales (which reached a 10-year low in December). On the contrary, business investments dropped by 0.7% in 4Q16. The continuing decline of capacity utilization leaves little scope for these to accelerate soon. Moreover, despite the low interest rates that are supporting households’ building intentions, growth on the building investment side is expected to remain constrained by SNB macroprudential policies: they also contracted, by 0.4% QoQ in 4Q16.”

“All in all, as in 2015 when Swiss GDP growth only reached 0.8%, 2016 growth of 1.3% was well below the European average of 1.7%. Each year is different however. In 2015, the slowdown was mainly due to the appreciating Swiss Franc. It was not the case in 2016 where the net trade contribution was very positive, mainly because of an import growth slowdown (due to the weaker domestic demand). Last year, it was rather domestic demand which fainted, as consumer and business confidence were impacted by the activity slowdown registered in 2015. In 2017, we expect domestic demand to recover, but with net export suffering again from a stronger CHF, especially against the euro. This is why we only expect growth to reach 1.2% this year, before gaining traction in 2018.”