Switzerland: Economy recovers modestly in Q4 2018
According to data released by the State Secretariat for Economic Affairs (SECO) on 28 February, the Swiss economy grew 0.2% in Q4 2018 over the previous quarter in seasonally-adjusted terms, rebounding from the revised 0.3% contraction recorded in Q3 (previously reported: -0.2% quarter-on-quarter). In annual terms, GDP expanded 1.4% in Q4, down from the 2.4% expansion logged in Q3 and missing market expectations of 1.7% growth. Q4’s print puts annual GDP growth at 2.5% in 2018, markedly up from 2017’s 1.6% reading.
Q4’s recovery came largely on the back of a surge in manufacturing production and a positive contribution from the external sector. Looking at a breakdown by expenditure, the data paints a more mixed picture, however. Private consumption growth accelerated in the quarter amid a tight labor market, and partly due to higher healthcare spending (Q4: +0.3% qoqsa; Q1: +0.1% qoqsa). Meanwhile, government spending recovered marginally in Q4 (Q4: +0.1% qoqsa; Q3: -0.1% qoqsa). Conversely, fixed investment continued to decline, albeit at a softer pace, falling 0.8% on the back of a sharp drop in equipment investment and a dip in construction investment (Q3: -1.3% qoqsa). Overall, domestic demand flatlined in Q4 (Q3: -0.3% qoqsa).
Looking at the external economy, exports plummeted 3.1% quarter-on-quarter in Q4 (Q3: +0.2% qoqsa), weighed on by the slowdown in the EU and softer global trade dynamics. Meanwhile, imports of goods and services plunged to a four-and-a-half-year low due in part to sluggish domestic demand (Q4: -7.5% qoqsa; Q3: +3.3% qoqsa). Despite significant weakness in external demand, the sharp decline in imports led to a positive contribution to the headline GDP print.
Although the overall yearly expansion was strong, the economy cooled considerably in the second half of 2018 and momentum is expected to continue to dissipate in 2019. Mounting headwinds from a slowdown in the Euro-area and a more challenging global trade environment in general will likely drag on the highly open economy. Already, the KOF economic barometer, an indicator of growth prospects in the short-term, pointed to below-average growth in January and February.
Commenting on the outlook, Charlotte de Montpellier, an economist at ING noted:
“Growth should continue to slow in 2019. The global growth deceleration will probably weigh on Swiss exports. The numerous risks weighing on the global economy are already affecting confidence at Swiss companies, which should lead to a slowdown in investments in 2019. […] The question now is whether in 2019 Switzerland will be able to maintain a growth rate higher than that of the eurozone. We believe that this will be difficult”.