Switzerland: Stronger economic momentum in Q4 signals end of “Frankenshock”
March 1, 2018
Switzerland’s economy wrapped up last year on a positive note, prompting government officials to declare an end to the “Frankenshock” that sent the economy reeling following the lifting of the currency cap three years ago. Seasonally-adjusted economic growth came in at 0.6% on a quarterly basis in the fourth quarter, according to data released by the State Secretariat for Economic Affairs (SECO). This was down slightly from the revised 0.7% expansion in the third quarter (previously reported: +0.6% quarter-on-quarter) but exceeded analysts’ expectations of a steeper dip to 0.5%. Underpinning growth were healthy expansions in public and private spending, while fixed investment suffered a rare contraction in the quarter.
Domestic demand supported growth in the quarter, and once again signaled the strength of the ongoing economic recovery. Household spending slowed from a quarter earlier but held firm, growing 0.2% (Q3: +0.4% qoq) on gains in the housing, healthcare and energy sectors. Moreover, government spending growth was unchanged from the third quarter at 0.5% quarter-on-quarter, in line with the long-run average. On the other hand, fixed investment fell from the previous quarter, contracting 0.4% (Q3: +0.9% qoq) as strong construction investment was more than offset by a fall in capital spending on machinery and equipment—highlighting the volatility of the research and development segment.
Foreign trade notched an improvement in the quarter when accounting for non-monetary gold and valuables, with exports of goods and services up 2.6% (Q3: -1.1% qoq). Excluding these, however, exports slid 1.9% in the quarter (Q3: +3.3% qoq) on a fall in merchanting and energy exports, as well as on weakness in licensing and patent services. In a bright spot, sales of chemical, pharmaceutical and machinery goods improved for another quarter. Meanwhile, imports of goods and services contracted 6.2% (Q3: +2.8% qoq). That said, when excluding non-monetary gold and valuables, imports rose 1.0% (Q3: -0.8% qoq) on a sharp increase in vehicle and machinery imports.
On an annual basis, economic growth improved in the fourth quarter, expanding 1.9%—the fastest pace in a year and a half and exceeding the 1.3% expansion recorded a quarter earlier. Meanwhile, despite the economy’s recent momentum, full-year growth last year clocked in at an underwhelming 1.0%, the weakest print in five years and well below the 1.4% gain posted a year earlier.
Author: Christopher Thomas, Economist