Rough global markets challenge the economy

The Swiss domestic economy is growing solidly. Economiesuisse estimates that real Swiss gross domestic product (GDP) will increase by 1.1% overall in 2024 (unchanged). At 1.4%, growth will also remain slightly below potential in 2025. The labor shortage will ease slightly. The unemployment rate will remain low at 2.4% (2024) and 2.6% (2025). Inflation continues to fall year-on-year and is within the SNB's target range.

Global markets in the grip of trade conflicts and inflation

Geopolitical tensions are continuing and global markets are fragmenting further into trading blocs and individual markets that are isolating themselves from each other. This will not change once Trump takes office; instead, further trade barriers are likely to be erected, accompanied by countermeasures from other countries. However, governments will have to be careful not to rekindle inflation in their countries by raising tariffs. Consumers are too aware of the negative consequences of inflation, which has had and continues to have a particularly negative impact on the lower-income population in the USA and EU countries.

Inflation in the USA is still at 2.6% and in the EU at 2.3% and is therefore no longer far above the target of 2%. However, core inflation - i.e. the inflation rate excluding the volatile components of food and energy prices - clearly exceeds this target value in both the USA at 3.3% and in the eurozone at 2.7%. Increased import prices, for example, would very quickly fuel the inflation rate again. Although inflation is less of a problem in China, the country is no longer playing the role of growth engine for the global economy. The domestic economy there is suffering from the consequences of the burst real estate bubble: consumption is weakening and investment is low. The export economy is also being held back by the trade conflict, particularly with the USA. The war in Ukraine and the conflict in the Middle East continue to weigh on the global economy and cause uncertainty.

Export industry: a year of challenges

The rough global economy is weighing on the Swiss export industry. Overall, however, it is holding its own even in a difficult international environment thanks to its focus on highly specialized niche products and innovative specialties. The Swiss export industry benefits from its broad diversification with a good mix of sectors and a global orientation. This helps in uncertain times. If demand is weak in the European automotive industry, for example, this is problematic for Switzerland, but does not threaten its existence because other markets at least partially compensate. However, the challenges abroad will increase rather than decrease in 2025.

Economiesuisse expects only a slight overall increase in exports of goods and services next year. The pharmaceutical and medical goods industries, which are less exposed to economic fluctuations, will see stable growth. Weak demand is having a particularly negative impact on the machinery and watchmaking industries. The outlook for the textile and chemical industries is mixed. Industries that are strongly oriented towards China and Germany are struggling the most. However, the sectoral perspective distorts the picture somewhat, as individual companies in each sector can expand successfully. Swiss service exports are somewhat less in focus, although they are growing robustly. Tourism may not be able to match its post-pandemic figures, but it has a positive outlook for the future. Banking and insurance services are stable. Commodity trading tends to benefit from the more volatile market environment and higher prices.

Solid development of the domestic economy

The domestic economy can rely on stable consumer demand. Private households are benefiting from real wage increases and low unemployment. The state is also consuming strongly. Companies are much more cautious, with the uncertain market development dampening investment. However, investment in equipment should increase again in 2025. Many sectors that are mainly domestically oriented will also develop positively in 2025 after a good 2024: construction and in particular the finishing trade, wholesale, retail, healthcare, consulting and IT/telecoms will be able to grow overall. It will be more difficult for the printing and publishing industry. The domestic economy will be supported by low interest rates, low inflation, rising nominal wages, falling electricity prices and a slight increase in employment.

The Swiss labour market is currently normalizing somewhat. The number of vacancies is decreasing and the labor shortage is easing slightly. However, the employment outlook remains good overall, as more companies want to expand their workforce than reduce it. Economiesuisse expects the unemployment rate to rise only slightly from 2.4% (2024) to 2.6% (2025).

Inflation in Switzerland is low. It has fallen faster than expected. As long as energy prices do not rise sharply again, price increases for 2025 are limited. Inflation will remain within the SNB's target range and fall to below one percent. The Swiss franc will strengthen (in nominal terms) year-on-year for several reasons. Firstly, the interest rate differentials between the Swiss franc and the euro and the dollar are falling. Secondly, inflation in Switzerland is sustainably lower than in other currency areas. Thirdly, our country's overall national debt and new borrowing are low. And fourthly, Switzerland's trade surplus continues. As a result, the franc will gain strength against the euro. Economiesuisse expects an average Swiss franc/euro exchange rate of 91 centimes in 2025. As the economic development in the USA is significantly better than that of the eurozone, the appreciation against the dollar will be smaller. We are mainly dealing with a weak euro.

Economic risks and obstacles to growth

Participants in the Economiesuisse survey in November believe that geopolitical tensions pose the greatest risk to the economy. As the unsupported responses show, the risks are primarily located abroad, with Germany and the USA being particularly emphasized. However, domestic conditions are also hampering economic growth, with bureaucracy and regulations leading the way. Almost a fifth state that this is restricting growth. Compared to June 2024 and last year, the proportion of companies suffering from an acute labor shortage has decreased. However, around 7% of survey participants state that this is still the biggest economic risk for their company. In addition, 10 percent are concerned about the exchange rate.

Source: www.economiesuisse.ch