According to estimates by the association, Swiss gross domestic product (GDP) should increase by 0.6 percent in real terms next year. “It cannot be ruled out that we will fall into a technical recession over the winter months. But we don’t expect negative growth over the year as a whole,” said Economiesuisse chief economist Rudolf Minsch at a media conference on Monday.
A technical recession means two consecutive quarters of negative growth rates. The overall development is likely to depend above all on the situation regarding energy and electricity prices. “A power shortage hovers like the sword of Damocles over economic development,” according to the association.
Such a move would lead to “drastic upheavals” and would probably also result in a recession in Switzerland. A good 20 percent of the companies would no longer have any tied electricity supply contracts for next year and would therefore be hit hard by a sharp rise in prices, according to Minsch.
The “great downside risks” are also the reason why only “fragile growth on thin ice” is expected. The association also surveys its members in connection with the economic forecast. In addition to the energy crisis, which at 27 percent is named the greatest economic risk by association members, inflation (20%), a general decline in demand (16%) and ongoing supply chain problems (14%) are also causing certain concerns in the economy.
If, for example, inflation can only be brought under control with drastic interest rate hikes, this would also choke off weak growth. In addition, global market growth would be jeopardized if inflation continued to ramp up. And another question mark is the development of the zero-Covid policy in China. The continuation of such a policy could fuel the supply bottleneck problem.
According to Economiesuisse, there are also positive scenarios in line with the many risks. A quick end to the Ukraine conflict, for example, sharply falling energy prices or an unexpectedly rapid return to price stability would have a very positive impact on global economic growth and thus also on Swiss development.
In the association’s baseline scenario for 2023, private consumption and investment in equipment are the pillars of growth, while construction, public consumption and foreign trade are likely to have a negative impact on growth.
Meanwhile, inflation is unlikely to fall substantially in 2023 and will remain above the target range of the Swiss National Bank (SNB) at around 2.7 percent on average. According to Minsch, inflation will still remain at around 2.5 percent at the end of 2023. In addition to higher electricity prices, this would primarily be due to higher nominal wages, higher prices for upstream services, ongoing shortages for many goods and rising rental costs.
Accordingly, the association expects further rate hikes by the SNB. In 10 days at the next interest rate meeting, chief economist Minsch expects the National Bank to raise the key interest rate by 50 basis points, and he also expects one or two additional rate hikes next year.
The labor market should continue to hold up relatively well. According to the forecast, the unemployment rate will only increase on average for the year from 2.2 percent in the current year to 2.4 percent in the coming year.