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There is a mini growth at the maximum. The State Secretariat for Economic Affairs (Seco) expects economic growth in Switzerland next year to be 1.1 percent. The otherwise proud Swiss economy is plagued by inflation, global recession fears and geopolitical uncertainty. Basel economics professor Sarah Lein answers what this means for employees, the local workplace and Switzerland on the international stage.
Ms. Lein, when was the last time you thought: “Oh, is this expensive?”
Sarah Lein: This is actually happening more frequently lately. But I have to say this: I lived in the USA in the first half of 2022. The perceived increase in inflation was much stronger! For example, food has become more than 15 percent more expensive in a very short period of time. You can clearly feel this in your daily shopping. On the other hand, what we experience in Switzerland is moderate.
In fact, inflation is currently 1.4 percent, well within the Swiss National Bank’s (SNB) target range of 2 percent. Why does it still feel like everything is getting more expensive?
The sentiment is correct: although inflation has fallen, it is still positive. Falling inflation does not mean that prices will stop rising or even fall. They just rise less sharply. And monetary authorities do not want inflation to be at zero or even below zero. They aim for a low but positive inflation rate in the medium term.
Will inflation reduce consumer desire in the new year?
Last year the economy was still benefiting from the catch-up effects of Covid. In fact, I expect a slightly weaker growth in private consumption in 2024. We usually first notice this in the demand for durable goods or the desire to travel: People go on holiday for less time or move to cheaper countries.
Is the travel industry facing a difficult year?
It is not a crisis year, but it is probably a less good year than 2023. Because, on the one hand, demand for holidays from abroad in Switzerland is weak. The economy of our neighboring countries is getting worse and the Swiss franc is also expensive. This makes holidays in Switzerland very expensive for foreigners. On the other hand, due to reduced purchasing power, some Swiss are more likely to go on holiday abroad, where it is cheaper. Swiss hoteliers should feel this.
So how will other sectors perform in the new year?
Sectors that are less dependent on the economy and less price sensitive, such as the pharmaceutical industry, are likely to support the Swiss economy again. The majority of our exports consist of chemicals and pharmaceuticals. But for the rest of the sector this is more difficult because it depends more on the exchange rate and, above all, on weak demand from abroad.
In the autumn, many industrial companies, including Rieter, made layoffs. Is the big wave of layoffs starting now?
This is very unlikely. We currently have an unemployment rate of around 2 percent, which is historically low. Even if the economy develops less dynamically, the unemployment rate is unlikely to rise sharply.
There is a lot of geopolitical turmoil going on with the war in Ukraine and the conflict in the Middle East. How big of a threat do you assess to the Swiss economy?
In recent years, we have experienced crises that we have not seen since the Second World War, with the pandemic, the outbreak of the Ukrainian war and the increase in energy prices, and Switzerland has overcome all these crises relatively well! This also makes me optimistic about the future: the Swiss economy is more resilient than we sometimes assume. I see the biggest risk for the Swiss economy in Germany.
Please?
There is great uncertainty in the German economy due to the budget deficit. The government will likely be forced to adopt sweeping austerity programs that will put additional strain on the economy and leave behind a politically problematic coalition. Germany is a very important trading partner for Switzerland. If there is an earthquake there, we will feel it here too.
Sarah Lein (44) is professor of macroeconomics at the University of Basel and conducts research on monetary policy and economic cycles, among other topics. She has been working at the University of Basel for almost a decade, and before that she was a member of management at the Swiss National Bank (SNB). Last autumn, he was considered the best candidate for the vacant position on the three-member SNB board. Finally, Antoine Martin from French-speaking Switzerland came to kiss the hand, probably because of the Latin representation in the SNB leadership. Sarah Lein is a dual German-Swiss citizen. She is married and the mother of three children.
Sarah Lein (44) is professor of macroeconomics at the University of Basel and conducts research on monetary policy and economic cycles, among other topics. She has been working at the University of Basel for almost a decade, and before that she was a member of management at the Swiss National Bank (SNB). Last autumn, he was considered the best candidate for the vacant position on the three-member SNB board. Finally, Antoine Martin from French-speaking Switzerland came to kiss the hand, probably because of the Latin representation in the SNB leadership. Sarah Lein is a dual German-Swiss citizen. She is married and the mother of three children.
Take a look into the crystal ball: Will the Swiss economy perform better or worse than other countries this year?
Compared to Europe: better. Compared to the USA: worse. The US economy has surprised me lately; It is developing very strongly despite restrictive monetary policy and little new stimulus from fiscal policy. The fact that we are in a better situation than Europe is due to both the structure of the Swiss economy and the high level of immigration to Switzerland. It supports the economy.
You need to explain this.
When the economy in this country is relatively good, it attracts workers from neighboring countries. Added to this is the shortage of skilled workers: many Swiss companies rely on foreign workers because they cannot find enough staff in Switzerland. Immigrants support domestic consumption and therefore the local economy.
The US Federal Reserve had previously announced an interest rate cut. On the other hand, the SNB recently said that interest rate cuts are “not open to discussion”. Is the SNB too hesitant?
The SNB is actually quite anti-inflation compared to other central banks. However, this has also benefited us in recent years. He didn’t let inflation get that high before intervening. Central banks in the US and the Eurozone were forced to tighten monetary policy even further because they did not initially anticipate how stubborn inflation would be. So their interest rates are much higher than ours. That’s why interest rate cuts are closer than in Switzerland because monetary policies are now much more restrictive and inflation has also fallen there.
From an inflation perspective, we seem to be out of the woods. Correctly?
I do not rule out the possibility that inflation in Switzerland will rise slightly again in the new year. The main reason for this is rents, which will rise again this year due to increases in the reference interest rate for many households. Then, in the new year, there will be an increase in VAT and electricity prices will rise again. However, from a monetary policy perspective, this situation can be handled relatively calmly: due to these effects, the SNB will not need further interest rate increases even if inflation rises again. When it comes to rents, increases in interest rates will actually be counterproductive at first. But for the population, this of course means further loss of purchasing power.
So should we all be charging more to compensate?
Actually. With such a concentrated labor market and real wages falling over the last two years, it is surprising that wages are not rising faster. Concerns about wage-price spirals in Switzerland are misplaced. In such situations, employees definitely have a very good negotiating position that they can use.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
