Real GDP in Switzerland fell for the first time in more than three years as exports nosedived. Further economic weakness in the next few quarters seems likely.
The weakness was concentrated in exports, which nosedived at an annualized rate of 14.2 percent. Some of this weakness may simply represent statistical payback for the surge in exports that was recorded during the previous quarter and some of the weakness may be associated with sluggish economic growth in some of Switzerland’s major trading partners. That said, we suspect that the sharp appreciation of Swiss franc in recent months—it has risen more than 15 percent against the euro and nearly 10 percent vis-à-vis the U.S. dollar since January—may also be playing a role in restraining Swiss exports. (The Swiss National Bank had been fighting the appreciation of the franc against the euro since September 2011. The central bank gave up the fight in January and, as shown in the middle chart, the franc surged against the euro and has remained at an elevated level.).
There have not been many data releases so far in the second quarter, but the incomplete picture we have at this point suggests that momentum remains weak. The manufacturing PMI in April remained below the demarcation line separating expansion from contraction, and the unemployment rate edged up to 3.3 percent from 3.2 percent in March. Most analysts look for the year-over-year rate of real GDP growth, which fell from 1.9 percent in Q4-2014 to 1.1 percent in Q1, to weaken further over the next few quarters.
Moreover, the economy has slipped into a mild deflationary environment. Although the sharp decline in oil prices since autumn has contributed to the downward path in the overall CPI inflation rate (bottom chart), the core rate of inflation, which excludes energy prices, is also in negative territory at present. In an attempt to combat deflationary forces, the Swiss National Bank (SNB) has taken its main policy rates deep into negative territory. With economic growth in Switzerland expected to remain weak for the foreseeable future and with CPI inflation expected to remain negative through the remainder of this year, it seems likely that the SNB will continue to maintain an accommodative monetary stance for quite some time.
Sharp Decline in Exports Lead to Negative GDP Growth
Data released today showed that real GDP in Switzerland fell 0.2 percent (0.8 percent at an annualized rate) in Q1-2015 relative to the previous quarter (top chart). Not only was the outturn weaker than expected, but it marked the first quarterly contraction in the Swiss economy in more than three years. There actually was modest growth in domestic demand in the first quarter. Real personal consumption expenditures rose at an annualized rate of 2.1 percent, fixed investment spending was up 1.6 percent and real government spending edged up 0.4 percent.The weakness was concentrated in exports, which nosedived at an annualized rate of 14.2 percent. Some of this weakness may simply represent statistical payback for the surge in exports that was recorded during the previous quarter and some of the weakness may be associated with sluggish economic growth in some of Switzerland’s major trading partners. That said, we suspect that the sharp appreciation of Swiss franc in recent months—it has risen more than 15 percent against the euro and nearly 10 percent vis-à-vis the U.S. dollar since January—may also be playing a role in restraining Swiss exports. (The Swiss National Bank had been fighting the appreciation of the franc against the euro since September 2011. The central bank gave up the fight in January and, as shown in the middle chart, the franc surged against the euro and has remained at an elevated level.).
There have not been many data releases so far in the second quarter, but the incomplete picture we have at this point suggests that momentum remains weak. The manufacturing PMI in April remained below the demarcation line separating expansion from contraction, and the unemployment rate edged up to 3.3 percent from 3.2 percent in March. Most analysts look for the year-over-year rate of real GDP growth, which fell from 1.9 percent in Q4-2014 to 1.1 percent in Q1, to weaken further over the next few quarters.
Moreover, the economy has slipped into a mild deflationary environment. Although the sharp decline in oil prices since autumn has contributed to the downward path in the overall CPI inflation rate (bottom chart), the core rate of inflation, which excludes energy prices, is also in negative territory at present. In an attempt to combat deflationary forces, the Swiss National Bank (SNB) has taken its main policy rates deep into negative territory. With economic growth in Switzerland expected to remain weak for the foreseeable future and with CPI inflation expected to remain negative through the remainder of this year, it seems likely that the SNB will continue to maintain an accommodative monetary stance for quite some time.
Recommended Content
Editors’ Picks
EUR/USD climbs to 10-day highs above 1.0700
EUR/USD gained traction and rose to its highest level in over a week above 1.0700 in the American session on Tuesday. The renewed US Dollar weakness following the disappointing PMI data helps the pair stretch higher.
GBP/USD extends recovery beyond 1.2400 on broad USD weakness
GBP/USD gathered bullish momentum and extended its daily rebound toward 1.2450 in the second half of the day. The US Dollar came under heavy selling pressure after weaker-than-forecast PMI data and fueled the pair's rally.
Gold trims losses on disappointing US PMIs
Gold (XAU/USD) reclaims part of the ground lost and pares initial losses on the back of further weakness in the Greenback following disheartening US PMIs prints.
Here’s why Ondo price hit new ATH amid bearish market outlook Premium
Ondo price shows no signs of slowing down after setting up an all-time high (ATH) at $1.05 on March 31. This development is likely to be followed by a correction and ATH but not necessarily in that order.
Germany’s economic come back
Germany is the sick man of Europe no more. Thanks to its service sector, it now appears that it will exit recession, and the economic future could be bright. The PMI data for April surprised on the upside for Germany, led by the service sector.