UBS consumption indicator at its lowest level this year
All components of the UBS consumption indicator were down in June.
Having reached a high point for the year in May, the UBS consumption indicator fell significantly by 0.40 points to 1.48 in June. This marks its lowest level thus far this year. All of the sub-indicators contributed to the decline in the UBS consumption indicator. The strong decline in new car registrations (-12% in June after +20% in May, respectively in year-on-year comparison) can be attributed to an exceptionally low number of working days in June, which this year included the Ascension Day and Whitsun holidays. The retail sector also experienced a strong decline in business volume.
The UBS consumption indicator mainly measures domestic consumption: hotel stays by Swiss residents in Switzerland, business activity in the retail sector and domestic credit card transactions are all domestic consumption indicators. The strong Swiss franc, however, will likely lead Swiss residents to buy more products and services outside of Switzerland, for instance by vacationing and shopping abroad rather than in Switzerland. The UBS consumption indicator may therefore underestimate the current momentum of overall private consumption, which includes consumption in both Switzerland and abroad.
The current index level of just under 1.5 implies inflation-adjusted private consumption growth of 1.5% year-on-year. Accordingly, we expect private consumption to accelerate over the course of the year, after first-quarter growth of only 0.6% according to the State Secretariat for Economic Affairs (SECO). On a per-capita basis, this actually represents a decline in consumption, since the Swiss population is growing by roughly 1% per year. In our view, the main drivers of consumption are sustained low interest rates, consistently high immigration and rising employment.
UBS Consumption Indicator and private consumption in Switzerland
(Private consumption: year-on-year change, in %; UBS Consumption Indicator: index level)