Switzerland Economic Forecast

After flatlining in Q4, the economy appeared to perform well in Q1. The services PMI and KOF Economic Barometer averaged higher in the quarter than in Q4. Moreover, retail sales rose 1.1% month-on-month in both January and February—albeit partly off the back of a low base effect in December—boding well for the private consumption outturn. Moreover, the fallout from Credit Suisse’s financial woes was seemingly contained by UBS’ swift government-backed takeover and liquidity provision from the Central Bank. Less positively, the export-focused manufacturing sector appeared to struggle in Q1; The PMI indicated worsening manufacturing operating conditions, likely due to soft goods demand abroad. In politics, the government recently signaled its intention to restart trade talks with the EU later this year; a revamped trade agreement will be crucial for the external sector’s long-term health.

Inflation came in at 2.9% in March, which was down from February’s 3.4% and undershot market expectations. Inflation is muted in the broader European context, but remains above the Central Bank’s target of less than 2%. Inflation is expected to move close to the Swiss National Bank (SNB)’s target range in H2 due to a more challenging base effect.