Zurich, 1 February 2018 – The UBS Chief Investment Office Wealth Management (UBS CIO) expects the Swiss gross domestic product to grow 1.8% this year. The Swiss economy is benefiting from a strong global economy and the significant weakening of the Swiss franc since mid-2017. Since inflation remains moderate, major central banks have been gradually normalizing monetary policy and thereby supporting the global recovery. The European Central Bank (ECB), for example, will likely end its bond buying program this year, but wait until the end of 2019 to raise its interest rate.
Swiss exporters will benefit from favorable cyclical conditions abroad. Positive signs have already begun to emerge in industry and tourism. The economic tailwind is helping the labor market, too. Employment is expected to increase faster, which will push unemployment below 3% for the first time since 2012. While last year's consumer price inflation was in large measure driven by higher oil prices, the weaker franc and higher capacity utilization rates will have a bigger impact this year. UBS economists expect inflation to reach 0.6% in 2018.
The franc's overvaluation against the euro dropped to 3% last year from 12%. Continued normalization of global monetary policy should devalue the franc even more. The room left for further devaluation is limited, though, so UBS expects the EUR/CHF exchange rate to reach 1.23 in 12 months. A weaker franc will give the Swiss National Bank (SNB) an opportunity to unwind its monetary stimulus. As a result, UBS economists expect the SNB to hike interest rates to –0.5% from –0.75% for the first time in December of this year. The Swiss interest rate is not, however, expected to turn positive until 2020, at which point the ECB will have raised its own interest rate.
Over 2% growth possible
Europe's cyclical recovery was already surprisingly vigorous last year. The Swiss economy would gain a lot if its two large neighbors, Italy and France, were to gain momentum. If that were to happen, domestic growth could overshoot the 2% mark by a wide margin.
One risk facing the Swiss economy is a potential franc resurgence. Political events such as escalating tensions on the Korean Peninsula could precipitate this scenario, or if Italy fails to form a government willing and able to undertake reforms following the spring elections, thus drawing the ire of the capital markets.
UBS Switzerland AG
Daniel Kalt, Regional CIO Switzerland
Phone +41 44 234 25 60, email@example.com
Sibille Duss, UBS Chief Investment Office WM
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Alessandro Bee, UBS Chief Investment Office WM
Phone +41 44 234 88 71, email@example.com