Switzerland: Economy gains momentum in Q3 on strong pharmaceutical exports
November 28, 2019
The economy grew 0.4% on a seasonally-adjusted quarter-on-quarter basis in the third quarter, accelerating from the 0.3% expansion in the second quarter. The reading surpassed market expectations of 0.2% growth and marked the strongest turnout since Q2 2018. In annual terms, GDP expanded 1.1% in Q3, up notably from the revised 0.2% expansion in Q2 (previously reported: +0.3% year-on-year).
Stronger growth in the third quarter was largely driven by a better performance by the external sector. Exports of goods and services rose a robust 5.1% over the prior quarter in Q3 (Q2: +2.3% quarter-on-quarter), boosted by a surge in exports of chemical and pharmaceutical products, and the largest rise in energy exports ever recorded amid favorable weather conditions. Conversely, growth in imports of goods and services moderated to 2.7% in Q3 from 5.5% in Q2.
For its part, the domestic economy fared worse in the third quarter. Private consumption weakened slightly (Q3: +0.2% qoq; Q2: +0.3% qoq), despite a strong labor market and rising wages. On the upside, fixed investment rebounded in the period (Q3: +0.5% qoq; Q2: -0.5% qoq), supported by recovering construction investment and investment in equipment and software. Moreover, government outlays strengthened (Q3: +0.5% qoq; Q2: +0.1% qoq), while an inventory build-up also contributed to headline growth.
Despite the third quarter’s improvement, the narrative for the Swiss economy is little changed. While the export-oriented manufacturing sector managed to defy the global slowdown in the third quarter, this was largely due to the pharmaceutical sector, which is generally insensitive to the business cycle, whereas exports of machinery and equipment declined. Headwinds to growth in 2020 will remain notable for the trade-reliant economy, particularly if the U.S.-China trade rift persists next year and/or the German economy struggles to find its footing. That said, domestic demand should rebound next year on an expected pick-up in fixed investment and sustained consumer outlays. Moreover, revenue for broadcasting rights related to the 2020 Olympics will likely artifically lift growth in 2020.
Commenting on the economic outlook, Charlotte de Montpellier, an economist at ING, stated:
“For the future, the Swiss economy is still facing some headwinds, although some signs of stabilisation are beginning to emerge. […] Economic risks are on the downside. An intensification of trade tensions between the US and China, or a trade battle between the EU and the US, could have a significant impact on the Swiss economy. The same applies to Brexit without an agreement, or a very sharp deterioration in relations between the EU and Switzerland. Turbulence on the financial markets could also push the Swiss franc to appreciate and lead to a decline in Swiss exports.”