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Is Switzerland heading for a consumption boom?
The UBS consumption indicator rose significantly in March, not least thanks to an improvement in the business situation in the retail sector. The consumption indicator may even underestimate the current trend in consumption.
Zurich/Basel, 24 April 2012 – The UBS consumption indicator rose dramatically in March, lying at 1.22 points. The brightening of business activity in the retail sector and the record-high number of new car registrations are the main factors behind the increase. Despite the strong franc, the first few months of this year also saw a year-on-year rise in Swiss residents' overnight stays in hotels in Switzerland.
Normally, the annual growth rate for inflation-adjusted private consumption can be inferred directly from the level of the UBS consumption indicator. Following this approach, the consumption indicator currently indicates a consumption growth of 1.2 percent, which corresponds exactly to UBS's forecast for 2012. However, two factors may imply that the UBS consumption indicator is underestimating the actual dynamics of consumption. First, the consumption indicator does not take the sustained high population growth fully into account; the Swiss population is likely to increase by more than 1 percent this year. Second, due to the way the indicator's design, falling prices influence the indicator negatively; the prices of imported goods in March were 4 percent lower year-on-year while the prices of new cars even decreased by as much as 10 percent. In reality, however, falling prices should be valued positively as they increase consumers' purchasing power. This is proven not least by the record-high number of new car registrations. This is why we cannot rule out the possibility that the actual consumption trend exceeds the UBS consumption indicator and that Switzerland is heading for a consumption boom.
UBS Consumption Indicator and private consumption in Switzerland
(Private consumption: year-on-year change, in %; UBS Consumption Indicator: index level)
Calculation of the UBS Consumption Indicator
The UBS Consumption Indicator signals private consumption trends in Switzerland with a lead time of about three months on the official figures. At roughly 60%, private consumption is by far the most important component of Swiss GDP. UBS calculates this leading indicator from five consumer-related parameters: new car registrations, business activity in the retail sector, the number of domestic overnight hotel stays by Swiss residents, the consumer sentiment index, and credit card transactions made via UBS at points of sale in Switzerland. With the exception of the consumersentiment index, all of this data is available monthly.
Daniel Kalt, Chief Economist Switzerland
Tel. +41 44 234 25 60
Caesar Lack, Wealth Management Research
Tel. +41 44 234 44 13
Sibille Duss, Wealth Management Research
Tel. +41 44 235 69 54
UBS publications and forecasts for Switzerland: www.ubs.com/wmr-swiss-research
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