Steady Growth Ahead
In the coming year, rising external and domestic headwinds will weigh on economic growth. These include a Brexit induced slowdown in regional trade and subsequent rise in political uncertainty, a weak short-term consumption outlook and rising risks surrounding the property market.
That said, the negative side effects of rapid Swiss franc appreciation in early 2015 have largely worn off with negligible lasting damage to the economy, and Switzerland is poised for stable real GDP growth over the medium term.
Switzerland's growth trajectory will be increasingly powered by consumer spending.
The government's robust fiscal position implies it will be able to step in and boost growth in the event that any external shock puts a sharp break on Swiss growth.
The Swiss National Bank will keep refrain from cutting interest rates deeper into negative territory, and instead will continue to intervene in FX markets in order to prevent excessive franc appreciation. Beyond the next several years, the franc will gradually depreciate from fundamentally overvalued levels.
A narrowing of Switzerland's large current account surplus will gather steam in 2016, but the surplus will remain sizeable over the coming years.
Major Forecast Changes
We have revised down our Swiss real GDP growth forecasts to 1.1% and 1.4% in 2016 and 2017 respectively, from 1.5% and 1.7% previously.
2016 has been characterised by mounting concerns over global growth prospects given Brexit, rising eurozone systemic risks, the prospect of a Chinese hard landing, and waning confidence in the ability of central banks to boost growth. Switzerland, being a highly open economy, remains high exposed to any further downturn in demand from developed and emerging market trading partners.
|e/f = BMI estimate/forecast; Source: National Sources/BMI|
|Real GDP growth, % y-o-y||1.9||0.9||1.1||1.4|
|Nominal GDP, USDbn||701.7||664.7||644.4||667.4|
|Consumer price inflation, % y-o-y, eop||-0.3||-1.3||0.6||1.0|
|Exchange rate CHF/USD, eop||0.99||1.00||1.05||1.05|
|Budget balance, % of GDP||-0.1e||-0.1e||0.0||0.0|
|Current account balance, % of GDP||8.8||11.4||9.8||8.8|
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