Our 2023 outlook for Switzerland

The Swiss economy has fared relatively well this year. GDP expanded by 0.2% quarter-on-quarter (q-o-q) in Q3, up from 0.1% in Q2. Growth has been mainly driven by the services sector, which continues to recover from the pandemic-related slump.

Forward indicators are a bit mixed but are generally pointing to a slowdown in economic activity. Larger-than-expected levels of gas storage have reduced the risk of energy rationing this winter, but the international environment remains a challenge for the Swiss economy, with some key trading partners likely to fall into a (mild) recession and the war in Ukraine expected to keep pressure on energy prices. Additionally, the strength of the Swiss franc could hurt export-oriented industries. On a more positive note, the labour market remains robust and should continue to support household consumption. Consequently, we forecast Swiss GDP to grow by 0.5% in 2023, compared with 2.0% in 2022. We expect Switzerland to avoid recession in 2023, but a lot will depend on the global situation and energy supplies.

The SNB has played a major role in keeping inflation lower than elsewhere by moving away from trying to weaken the Swiss franc to aiming to keep it strong. Yet while Switzerland’s inflation rate of around 3% is low by international comparison, it is significantly above the 0% to 2% range that the SNB equates with price stability. Having said that, easing price pressures should reduce the need for further aggressive monetary policy tightening. 

Following a rate hike of 75bp in September, we expect the SNB to slow the pace of rate increases to 50bp next week, bringing its main policy rate to 1.0%. Our central forecast is for the SNB to hike by a further 50bp in March, bringing the policy rate to 1.5%, before marking a pause for the rest of the year. While interest rates will remain its policy tool of choice, we expect the SNB to sell foreign currency reserves to reduce any downward pressure on the Swiss franc (although not in a systematic way).