Switzerland Economic Forecast

After GDP growth of 0.3% on a seasonally adjusted quarter-on-quarter basis in Q1, available data suggests that the economy slowed in Q2 amid rising domestic interest rates. PMI data for the second quarter pointed to a loss of momentum in both the manufacturing and services sectors, with the former likely tied to soft external demand. However, rock-bottom unemployment and mild inflation by European standards should have stemmed the slowdown. Turning to Q3, available signs are downbeat, with surveys of business conditions in the manufacturing and services industries recording the worst readings in years in July. That said, the ongoing strength of the labor market and the continued fall in inflation through July likely continued to act as economic lifelines.

Inflation ticked down to 1.6% in July from June’s 1.7%, meeting the Central Bank’s target of below 2%. Inflation remains muted compared to neighbors, with Euro area inflation clocking 5.3% in July. Inflation is forecast to average below 2% for the remainder of the year, with the recent uptick in oil prices largely offset by tighter monetary policy.