Stoic Switzerland

The Swiss economy managed to weather the covid crisis relatively well and started 2022 with significant growth potential. Having expanded 0.2% quarter-on-quarter (q-o-q) in Q4 2021, Swiss GDP grew 0.5% q-o-q in Q1 2022, bringing GDP 2.4% above its pre-pandemic level. The war in Ukraine, the rise in commodity prices and persistent supply bottlenecks amplified by China’s zero-covid policy have created new headwinds, but so far the Swiss economy has remained resilient.

Several leading indicators show the outlook for the coming months remains subdued. The strength of the Swiss franc and the slowdown expected in some key trading partners such as the US and Europe mean the environment will become more challenging for Swiss industry. In all, we see the Swiss economy growing 2.6% in 2022, above the long-term average, but we expect GDP growth to slow to 1.3% in 2023.

As elsewhere, Swiss headline inflation has accelerated sharply in recent months, with food and energy the main drivers. Nevertheless, the strength of the Swiss currency has helped to reduce imported price pressure and kept inflation lower than in other countries. We expect headline inflation to remain above 2.0% until the end of this year and to average 2.7% in 2022 as a whole. We see Swiss annual inflation falling to 1.5% in 2023 but recognise there is a risk the rate is higher.

The Swiss National Bank (SNB) surprised observers by raising its policy rate by 50 bps in June, its first rate hike since 2007. We see the SNB hiking by a further 50bp in September and then by 25bp at each quarterly meeting until at least March 2023. This would bring the policy rate up to at least +0.75%. We could see bolder policy moves depending the actions of other central banks and the exchange rate, with the SNB now set on defending currency strength.

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