Swiss economy: Turning the page after weak 2017

Private consumption grew at a weak pace of just 1.2% in 2017 compared to 2016 (+1.5%) and 2015 (+1.8%). Economic uncertainties were still weighing on companies’ hiring intentions and the unemployment rate remained above 3% all year. This lead to a further decline in retail sales which are back at their 2007 level. Consumer confidence has been very low in 2017, at its 2009/2011 average (1.3), which explains the limited private consumption growth (0.2% QoQ on average). With increased consumer confidence during the first quarter of 2018 and a brightening economic outlook, we expect private consumption growth to rebound from 1.2% in 2017 to 1.5% in 2018.

Industrial production was growing by 9% YoY in 4Q17. The recovery in industrial activity, mainly led by external demand, has brought capacity utilisation back to its 2012 level. With industry running at more than 84% of capacity, stronger business investment should be seen in coming quarters. After the strong investment rebound in the third quarter, business investment declined by 1.3% in 4Q17. This was partially compensated by household investment, leaving the investment growth at 0.4% QoQ in 4Q17. All in all, domestic demand was strongly supported by investment while private consumption was still lagging behind at the end of the year.

Swiss exports fell by 0.7% in 2017, but the strong decline in imports due to weak private consumption and a depreciating Swiss franc allowed a positive contribution of 1pp in 2017. With the trend expected to continue for the EUR/CHF, this contribution should be higher in 2018. Today's PMI data points to a further acceleration in growth in the first half of 2018. The Swiss economy is therefore starting 2018 on a strong footing.