Photographer: Alessandro Della Bella/Bloomberg

Swiss Economy Unexpectedly Stalls on Weak Domestic Demand

  • Median estimate in Bloomberg survey was for 0.3% increase
  • Trade balance in goods and services had negative effect

Switzerland’s economy failed to grow for the first time in more than a year in the third quarter, held back by weak domestic demand and the first fall in government spending since early 2014.

The stagnation followed expansion of 0.6 percent in the three months through June, and fell short of the 0.3 percent growth forecast by economists in a Bloomberg survey. The statistics office said the weak performance wasn’t a sign of the recovery being thrown off course.

“This surprisingly slow growth is not mainly due to the strong franc, but due to a few special factors -- for example, there was no growth impulse from the health care sector which is unusual,” Ronald Indergand, head of the economics department at the SECO, said by telephone. “We believe that the quarter is an outlier and that the recovery of the economy
from the strong franc isn’t in jeopardy.”

Switzerland’s growth has long been plagued by the strength of its currency, which the central bank says is “overvalued” and occasionally tries to tame with market interventions. While the recovery in the euro area -- Switzerland’s biggest market -- is chugging along, political uncertainty linked to elections across the region next year could undermine demand there.

“It’s all a bit tepid, if you look at the various components,” said Cornelia Luchsinger, an economist at Zuercher Kantonalbank. ZKB sees the economy growing 1.1 percent this year and 1.4 percent next year. “We see growth around the potential, not above.”

Contributing Factors

Exports of goods relevant to the real economy increased 1.2 percent in the quarter, thanks to strong foreign demand for pharmaceuticals, according to the SECO. Exports of services contracted 0.8 percent, and when factoring in imports of both goods and services, that resulted in a negative trade balance.

Swiss household spending rose just 0.1 percent, while investment in equipment increased 0.5 percent, the SECO said. Government consumption declined 0.1 percent.

“The surprise for us was the weak domestic situation,” Indergand said. “Manufacturing was relatively solid, and other sectors such as the tourism industry that have been under pressure due to the strong franc didn’t fare so poorly either.”

Recent economic gauges have indicated that economic growth is on track. A closely watched index of manufacturing activity touched its highest in nearly three years in November. Output increased for a 14th month and the backlog of orders rose markedly.

The Swiss National Bank, which caused the surge in the franc last year when it gave up its minimum exchange rate, will issue its first take on growth in 2017 at its policy assessment on Dec. 15. It’s most recent forecast, issued in September, was for growth of approximately 1.5 percent in 2016. The SECO, which will also update its projections on Dec. 15, predicts an expansion of 1.8 percent in 2017.

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