The monthly UBS Consumption indicator fell to 1.88 in July, from 2.12 in June and 1.92 in May. Despite the drop, the number is still well above its long-term average of 1.49, indicating that consumer spending should continue its current solid trend.

The downturn in the UBS Consumption Indicator in July was due to sharply lower growth in new car registrations and the slight softening in retail sales, as shown by the latest KOF survey on business conditions in the retail sector.

Despite the drop in the indicator, UBS economists believe that the outlook for consumer spending in Switzerland remains bright overall. Supporting this view is the situation on the labour market, which has shown a positive trend for over a year. Employment was up 0.4% year-on-year in the second quarter, and the increase in job security helped further improve consumer sentiment in July. UBS economists are confident that the boost in confidence going forward and the ongoing strong outlook for the labour market will continue to stimulate consumer spending in the rest of the year. UBS reckons that private consumption will rise by 1.9% in 2006. Gross domestic product overall should grow by 3% for the year.

(Private consumption: year-on-year change in %, UBS Consumption Indicator: index level)