According to the association’s forecasts, Swiss gross domestic product (GDP) will increase by 0.6 percent in real terms next year. “It cannot be ruled out that we are going into a technical recession during the winter months. But we don’t expect negative growth for the full year,” Economiesuisse chief economist Rudolf Minsch said at a press conference on Monday.
Technical recession means negative growth rates for two consecutive quarters. The overall development will probably depend first of all on the situation with regard to energy and electricity prices. According to the association, “A power shortage hangs like Damocles’ sword over economic development”.
Such a move would lead to “hard riots” and possibly result in a recession in Switzerland. According to Minsch, about 20 percent of companies will not have any connected electricity supply contracts for the next year and will therefore be hit hard by the sharp rise in prices.
“Large downside risks” are also why only “fragile growth on thin ice” is expected. The association also researches its members in connection with economic forecasting. In addition to the energy crisis, which was named the biggest economic risk by association members with 27 percent, inflation (20%), general demand decline (16%) and ongoing supply chain problems (14%) are also causing some concerns. in the economy.
For example, if inflation can only be brought under control by drastically increasing interest rates, this will also halt weak growth. Also, global market growth could be jeopardized if inflation continues to rise. Another question mark is the development of a zero-Kovid policy in China. The continuation of such a policy could fuel the supply bottleneck problem.
According to Economiesuisse, there are positive scenarios in parallel with many risks. For example, a quick end to the Ukrainian conflict, sharply falling energy prices or an unexpectedly rapid return to price stability would have a very positive impact on global economic growth and therefore on Swiss development.
In the association’s 2023 baseline scenario, private consumption and equipment investment will be the main pillars of growth, while construction, public consumption and foreign trade are likely to affect growth negatively.
Meanwhile, inflation is unlikely to drop significantly in 2023 and will remain above the Swiss National Bank’s (SNB) average target range of around 2.7 percent. According to Minsch, inflation will remain at around 2.5 percent at the end of 2023. In addition to higher electricity prices, this will be primarily due to higher nominal wages, higher prices for generation services, continued shortages of many goods, and rising rental costs.
Accordingly, the association expects more rate increases from the SNB. Within 10 days of the next rate meeting, chief economist Minsch expects the Federal Reserve to raise the key rate by 50 basis points, and also expects one or two additional rate hikes next year.
The labor market should remain in relatively good shape. According to forecasts, the unemployment rate will rise from an average of 2.2 percent for this year alone to 2.4 percent next year.
(SDA)