The outlook for the Swiss economy is tending to downgrade the macroeconomic forecasts of the Swiss Secretariat for Economic Affairs (Seco).
Growth forecasts have been revised downwards and theinflation upwards.
Thus, for 2022, we observe a growth rate of 2.6% compared to 2.8% announced.
Moreover, the year 2023 follows this trend with 1.9% growth against an estimated 2.0%.
Nevertheless, the recovery is expected to be less sustained, according to Seco.
The War in Ukraine and the impact of the pandemic on growth in China explains the deterioration of this outlook.
Inflation is revised upwards to an annual average of 2.5%, compared to the March 2022 forecast of 1.9%.
However, price inflation is expected to slow in 2023 to 1.4%, compared to the 0.7% increase posted by Seco in March 2022.
We discussed this in our last article: « Why is buying a property in Switzerland becoming more expensive than renting? », the energy and food prices has risen sharply at the global level. This is putting significant pressure on the domestic demand of some trading partners, with negative repercussions for exporting industries.
But then, if the global dynamic announces the beginnings of a planetary recession, why can we consider Switzerland as the survivor of inflation?
Let’s start with an observation…
The Swiss economy is suffering.
The cyclical risks in 2023 will be inflation, energy shortages and supply problems.
The month of May 2022 is indicative of the strongest rise in inflation in the country for 14 years.
The expected inflation for the end of 2022 will be close to 3%. Nevertheless, the exchange rate fluctuation of the euro should increase exports by 4.7%.
However, the consumer price index rose to 2.9% in May 2022, up 0.7% from the previous month.
This is an edifying fact when one considers that the price stability of the SNB was set at a maximum of 2%.
The war in Ukraine and the international sanctions against Russia caused oil prices to soar. As a result, owners and tenants The prices of fuel oil (+81.9%) and gas (+40.7%) were strongly affected.
Transport is not exempt from the consequences, as diesel and petrol prices have jumped by 30.4% and 25.3% respectively.
The knock-on effect is that some food products such as melons, grapes, salad vegetables and stone fruits are affected by price increases.
The role of central banks
In the face of rising inflation, the Director of the Swiss National Bank (SNB), Thomas Jordan, decided to raise his key rate by 0.5%.
Although the policy rate At the current rate of -0.25%, all rates could turn positive again.
The SNB wants to send a strong signal because Switzerland is not the only country affected by a sharp rise in rates.
Indeed, the US central bank increased its key interest rate by 0.75% to a range between 2.25% and 2.50%, the highest increase since 1994. However, the United States is outpacing Switzerland with an increase of 8.6%, i.e. a threefold impact.
With inflation at 8.1% in the eurozone and a peak of 20.1% in Estonia, interest rates rose by +0.50% in July.
Finally, the Bank of England must meet the challenge of stagflation, i.e. inflation linked to low economic growth.
In 2023, prices are expected to rise by up to 11%. The current policy rate is 1.25%.
How is the property market reacting to rising interest rates?
The increase in interest rate increases the cost of mortgage loans and thus the price of houses and flats.
At present, demand is not weakening despite an announced slowdown.
The price increase for owner-occupied flats has reached +0.8% but demand remains strong.
In addition, 10-year mortgage rates have risen to between 0.5% and 1%. However, buyers continue to show interest as the main factors affecting prices (immigration and economic activity) are stable.
The price of investment properties has also increased (+6.4% on an annual basis). Moreover, the rise in rates by the BNS announces increased risks. For this reason, theparticipatory real estate investment has never been a more current alternative to traditional property investment.
The Swiss are less worried about inflation than their neighbours. This is quite normal, when you consider that Switzerland has an inflation rate of approximately 3% compared to 7% to 8% for Germany and Austria.
What can we conclude from this…?
Inflation in Switzerland remains very low compared to the eurozone and the US.
The strength of the franc is not insignificant following its deliberate appreciation by the SNB.
The currency has been able to curb the rise in prices of imported goods and services despite a constant increase due to soaring energy and transport costs.
Also, from a structural point of view, Switzerland remains an island of cost and limits the rise in prices.
In addition, Swiss companies have a higher margin level than elsewhere because :
- there is less competition in some sectors.
- there is a concentration of companies specialising in higher niche activities.
Based on future forecasts, market participants do not expect central banks to raise interest rates before 2023.
On the other hand, they also do not know whether interest rate hikes by central banks would lead to a return to inflation control.
However, inflationary risks are now taken seriously.
At present, inflation in Switzerland is still rising, but at a slower pace than a few months ago, and hopefully points to a return to stability in the country’s economy and the appreciation of the Swiss franc.
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