Economic forecast: Outlook deteriorates marginally amid high uncertainty

Bern, 17.12.2024 - The Federal Government Expert Group on Business Cycles has slightly lowered its economic growth forecast for 2025 (GDP adjusted for sporting events: 1.5%; September forecast: 1.6%). The recovery of the European economy has been delayed. The international economy is not expected to normalise until 2026, at which point growth in the Swiss economy would also accelerate (1.7%).* Downside risks currently outweigh upside potential. Uncertainty surrounding international economic and trade policy is very high.

In the third quarter of 2024, Switzerland's GDP grew at a below-average rate and was some-what weaker than anticipated. Domestic demand and certain areas of the services sector are supporting growth, while manufacturing and exports posted declines. Sentiment indicators are moving sideways and suggest a faltering recovery. Due in part to data revisions, growth of 0.9% is now projected for the current year (September forecast: 1.2%).

Growth disparities between various economic areas have recently become more pro-nounced. The US economy has shown stronger-than-expected growth and the outlook con-tinues to brighten. In contrast, the German economy remains weak, with persistent tensions in the country's industrial sector. For the coming year, the Expert Group on Business Cycles expects weaker development in the German and other European economies than previously estimated. Additionally, the Swiss franc remains relatively strong.

In this context, the structure of the Swiss economy and the broad diversification of its trading partners are helping to stabilise economic activity. However, export-oriented sectors sensitive to cyclical and exchange rate fluctuations are facing a slowdown. Industrial production capac-ities are currently underutilised and order books are weak, factors that are likely to continue to dampen investment activity in the near term.

The Expert Group is marginally reducing its economic growth forecast for Switzerland in 2025 to 1.5% (September forecast: 1.6%). This would place Swiss economic growth in the coming year below the historical average (1.8%), following two years of modest growth. Domestic demand is likely to prove to be the primary growth driver. Lower mortgage rates should fur-ther stimulate construction activity. Moreover, further increases in employment are expected in the coming year, alongside a more pronounced decline in inflation than previously forecast (2025: 0.3%, September forecast: 0.7%). This would prove beneficial for consumer spending by private households.

In 2026, the rest of Europe in particular should gradually recover from the current economic downturn. This should also help boost Swiss exports and investments. The Expert Group forecasts growth of 1.7% for the Swiss economy in 2026, with inflation likely to average 0.7% for the year.

The moderate pace of economic growth will be accompanied by rising unemployment. The unemployment rate is expected to average 2.7% in 2025 (September forecast: 2.6%), re-maining at 2.7% in 2026.

Economic risks
Currently, there is a very high level of uncertainty surrounding international economic and trade policy and its macroeconomic implications.** The present forecast does not explicitly assume any scenario related to a potential new direction in economic policy following the US administration change in January 2025. Trade barriers and trade conflicts would pose signifi-cant risks for the international economy. More precise estimates should become possible in the coming six months.

A more pronounced weakening of the international economy would directly impact Swiss foreign trade and the domestic economy. Geopolitical risks persist, particularly in connection with armed conflicts in the Middle East and Ukraine. Furthermore, inflation could prove more persistent, potentially slowing the easing of monetary policy in major currency areas. This would exacerbate existing risks associated with global debt, financial institutions' balance sheet risks, and risks in property and financial markets. Should various risks materialise, up-ward pressure on the Swiss franc would be likely.

*Growth rates of real GDP adjusted for seasonal/calendar effects and sporting events. Further information on the forecast by the Federal Government Expert Group on Business Cycles can be found in the attached eco-nomic forecast section of 'Konjunkturtendenzen Winter 2024/2025' (available in German) and at www.seco.admin.ch/economic-forecasts.
** See the excursus 'Unsicherheiten bezüglich der künftigen Handels- und Wirtschaftspolitik der USA' in 'Kon-junkturtendenzen Winter 2024/2025' at www.seco.admin.ch/economic-forecasts