Swiss export industry under pressure

The Allianz Trade Export Forecast was able to break away from the multi-year low of -1.40 points at the end of 2022 and is now approaching the zero-point mark. This suggests that exports should develop in line with the long-term average of around 4% in six to twelve months. Over the course of the year, Swiss exports have risen by around one percent compared to the same period last year. In addition, Swiss industry is showing the first signs of stabilization in September 2024 despite ongoing challenges in the international environment. The further course of the economy depends largely on global economic developments.

Allianz Trade Export Forecast approaches long-term trend

"It is encouraging that the Allianz Trade Export Forecast is approaching the long-term trend growth of 4 percent per year, which signals good prospects for the Swiss export industry. It appears that most Swiss export companies are well positioned, as the industry is weakening in key regions of the world," comments Jan Möllmann, CEO Allianz Trade Switzerland.

The international environment remains challenging

Global industrial production is still in a downturn. At 47.6 points, the export-weighted Purchasing Managers' Index of Switzerland's most important export destinations is in the contraction zone. The J.P. Morgan Global Manufacturing PMI also points to continued weakness in the global manufacturing sector, falling to 48.8 points in September. This is the third consecutive month of deterioration in global business conditions and marks the sharpest decline in almost a year. The weakness was felt across all industrial sectors. Both the intermediate and capital goods industries recorded declines in production. Even in the consumer goods sector, which still recorded low growth, expansion remained moderate at best.

Financial markets solid so far

The stock markets remain robust, with technology and large companies in particular reaching new highs. "Lower interest rates are fueling the stock markets. The economic slowdown and easing inflationary pressure are prompting central banks to cut interest rates," says Jasmin Groeschl, Senior Economist for Europe at Allianz Trade. The Swiss National Bank has taken on a pioneering role and was the first major central bank to initiate a turnaround in interest rates back in the spring. The European Central Bank and the US Federal Reserve followed suit later in the year. Allianz Trade expects that after real growth of 0.8 % in 2023, economic growth of 1.4 % will be achieved in 2024 and 1.5 % in 2025. The State Secretariat for Economic Affairs (SECO) expects real GDP growth of 1.6 % this year, which is significantly more optimistic than the forecast by Allianz Trade. On the other hand, it expects growth of only 1.2 % in 2025.

Inflation in Switzerland is falling faster than expected

In 2023, the inflation rate in Switzerland was 2.1 %, influenced by rising prices for domestic services, while energy prices made only a small contribution to inflation. Inflation fell to 1.2 % in the first quarter of 2024, rose slightly to 1.4 % in the second quarter and fell again to 1.1 % in the third quarter. An inflation rate of 1.3 % is forecast for 2024 as a whole. The main drivers of inflation are rents and high service inflation. With wage growth of around 1.5 %, labor costs will continue to influence service prices. At the same time, falling goods and energy prices are supporting the decline in inflation, making imported goods and services cheaper despite the nominal appreciation of the Swiss franc. However, a strong franc harbors risks for the export industry, as it makes exports more expensive, while global demand remains weak due to uncertainties. Allianz Trade expects an inflation rate of 1.2 % for 2025.

Robust Swiss economy

The Swiss economy proved to be robust over the course of the year. Exports rose by 0.9 % in the first nine months compared to the same period of the previous year. Momentum has tended to slow in recent months. In the third quarter of 2024, Swiss foreign trade recorded a decline after a record result in the previous quarter. Seasonally adjusted exports fell by 4.3 % (real: -5.9 %) to CHF 66.1 billion, but remained above the average of the last five quarters. Imports fell by CHF 2.9 % (real: -0.9 %) and reached their lowest level since the fourth quarter of 2021. Despite these developments, the trade balance recorded a surplus of CHF 11.3 billion.

The decline in exports affected eight of the eleven product groups in the third quarter. The group with the highest turnover, chemical and pharmaceutical products, recorded a drop of CHF 6 % (CHF -2.3 billion), in particular due to a decline in medicines (CHF -924 million). Metals, vehicles, precision instruments and watches also recorded losses. Despite a slight decline, watch exports remained at a high level of around CHF 6.5 billion. In regional terms, exports to North America fell by 14.8 % (USA: -15.4 %), having risen by a fifth in the previous quarter. Exports to Europe fell by 3.7 %, particularly markedly in Slovenia and France (together -856 million francs), while exports to Spain rose by 160 million francs. In Asia, exports fell by 2.1 %, with Hong Kong, Japan and South Korea among those affected.

A look at global trade

The recovery in global trade continues. Allianz Trade expects growth of 3.8 % in 2024, 3.0 % in 2025 and 3.1 % in 2026. Global merchandise trade recovered by 0.9 % year-on-year in the first half of 2024, thanks to the resilience of private consumption and retailers' efforts to replenish their inventories ahead of the holiday season. However, exporters' profitability is suffering from sharp increases in ocean freight costs. By September 2024, freight rates increased by 79 % and 184 % year-on-year and stand at around 46 % of the 2021 peak. Despite an expected decline after the holiday season, rates will remain high as long as the Gaza conflict continues and until the situation in the Red Sea stabilizes.

Source: www.allianz-trade.ch