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Weak European growth dampens Swiss economic expectations

Published on December 17, 2024

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Weak European growth dampens Swiss economic expectations — KOF and federal economists lower expectations for the Swiss economy Keystone-SDA

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The flagging French and German economies, plus a strong franc, have depressed expectations for Swiss economic growth both this year and in 2025.

This content was published on December 17, 2024 - 11:12

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The KOF Swiss Economic Institute is now only expecting real gross domestic product (GDP, adjusted for sporting events) to grow by 0.9% this year instead of the previous 1.1%, according to a statement on Tuesday. The forecast for 2025 has also been reduced from 1.6% to 1.4%. For 2026, the KOF remains at 1.7%.

The Swiss government’s group of experts has also lowered its growth outlook for the current and coming year. For 2024, they are now only forecasting an increase in GDP (adjusted for sporting events) of 0.9%, as announced by the State Secretariat for Economic Affairs (Seco). Previously, the experts had assumed 1.2%.

For 2025, the federal economists now expect GDP growth of 1.5%. In September, they had still forecast growth of 1.6%. And for the first time, there is also a forecast for growth in 2026, when growth of 1.7% is expected, as with the KOF.

Swiss National Bank lowers key interest rate by 0.5%

This content was published on Dec 12, 2024 The Swiss National Bank lowers benchmark interest rate by a surprisingly hefty 0.5%. The reference rate now stands at 0.5%.

International environment acts as a brake

KOF economists note that the Swiss economy continues to be held back by the subdued development in Europe, particularly in Germany and France. The already weak international economy deteriorated further in the fourth quarter.

Weak demand is likely to continue until the middle of next year, and only then can a slight improvement in economic demand be expected. The export-oriented part of the Swiss economy is also suffering from the strong Swiss franc. The domestic economy is at least holding steady thanks to strong consumption.

Inflation falls more sharply

According to the KOF, the decline in inflation is stronger than expected. Inflation expectations for the coming year 2025 and also 2026 have been adjusted again and now stand at 0.5% and 0.6% respectively (previously 0.7% each). Meanwhile, the international economic trend is likely to have an increasingly negative impact on the Swiss labor market.

+ Switzerland navigates own course through inflation maze

In fact, Seco now only expects annual inflation of 0.3% in 2025, after a price increase of 0.7% was expected in September. Consumer spending by private households would benefit from this development. At 2.7%, they expect the unemployment rate in the coming year to be slightly higher than previously (2.6%).

The Swiss National Bank (SNB) is expected to make a further interest rate cut in March 2025 to 0.25% following last week’s 50 basis point cut in the key interest rate, according to the KOF. Slower wage growth combined with a reduction in the reference interest rate should reduce inflationary pressure on domestic services and rents.

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Translated from German by DeepL/mga

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