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Swiss economy gets boost from Europe

A Swiss and a European Union table flag, captured in an office space.
KOF economists say the apparent recovery is due to an improved outlook in Europe. Keystone / Gaetan Bally

A hoped-for upturn in the Swiss economy will soon become a reality with support coming from Europe, according to the KOF Swiss Economic Institute.

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KOF economists predict that a recovery will start in the second half of this year. Specifically, they expect a 1.2% increase in sport-adjusted gross domestic product (GDP) for 2024 as a whole and 1.8% for 2025, according to a statement on Monday by the think tank that belongs to the federal technology institute ETH Zurich

The reason for the apparent recovery is the situation in Europe. According to the latest KOF forecast, the outlook should improve in Germany, France, and Italy in particular, where increased consumer spending and higher investment is expected.

Better prospects for industry

As is well known, the recent below-average growth in these countries had slowed down the export-driven part of the Swiss economy. However, momentum in exports is now picking up again, according to the forecast. It expects exports of goods and services (excluding valuables) to grow by 2.9% in 2024 and 2.7% in 2025. As a result, value added in the manufacturing sector should also increase again after recent weak quarters.

+ Q1/2024 check-up: how the Swiss economy is faring

Additional benefits will come from lower inflation, which the KOF now expects to be 1.3% in 2024 and 1.0% in 2025. This is expected to lead to real wage growth, which should offset the real wage losses of the last two years. Meanwhile, the labour market is still robust, albeit no longer as strong as in the last three years.

+ Swiss GDP growth slowed by weaker industry sector

According to the think tank, the changes in inflation rates also allow for further interest rate cuts by the Swiss National Bank (SNB). It expects the SNB to cut the key interest rate to 1.25% next Thursday and then to 1% in March 2025. This would also help the economy, it says.

Wars as a factor of uncertainty

As usual, the institute emphasises uncertainties ahead. For example, unexpectedly strong second-round effects of persistently high inflation in the eurozone and the US could cloud the optimistic outlook. On the positive side, however, an unexpectedly sharp fall in inflation in these two economic areas could boost purchasing power and private consumption. The wars in Ukraine and the Middle East are also factors of uncertainty.

+ Swiss employment rate rises in first quarter of 2024

The forecast for Swiss GDP is somewhat unique. Here, the forecasts are 1.6% for 2024 and 1.4% for 2025, although these figures are distorted by major sporting events such as the Olympic Games and the European Football Championship (Euro 2024). This is due to the licencing payments which are made to the international sports federations based in Switzerland. However, these payments do not provide insight on GDP and are therefore excluded from the calculation.

Adapted from German by DeepL/dkk/sb

This news story has been written and carefully fact-checked by an external editorial team. At SWI we select the most relevant news for an international audience and use automatic translation tools such as DeepL to translate it into English. Providing you with automatically translated news gives us the time to write more in-depth articles.

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