Swiss economy to rise in 2017, global outlook improved
On Wednesday OECD released the global economic outlook in Paris. According to its forecasts over Switzerland, GDP growth is projected to rise gradually, which will reduce unemployment. The low interest rate environment is set to continue, helping to revive domestic demand. Deflation seems to have been overcome, but inflation is projected to remain low through 2018. The large current account surplus will persist.
OECD reported Swiss GDP grew by 1.3% in 2016, a marked improvement on 2015. Nevertheless, growth remains modest and leaves significant slack in the economy. Recent indicators point to some strengthening. The Swiss franc depreciated in real terms in 2016 and early 2017 after a large appreciation in 2015, but upward pressures remain, which have led to sizeable interventions by the Swiss National Bank (SNB).
A continuation of the policy of negative rates is justified by low inflation and weak growth. Nevertheless, as growth picks up, policy interest rates are projected to begin to rise in late 2018. As persistent very low rates can give rise to major financial distortions, close monitoring and tight prudential regulation should also be retained. Small budget surpluses are expected, and public debt will continue to decline. Available fiscal space should be exploited to support the recovery.
As the economy increasingly opens to Europe and the rest of the world, Switzerland should be able to maintain its enviable economic position. In particular, it has managed to develop several leading global industries. However, well-being would be enhanced if barriers to trade in services were lowered to deepen participation in global value chains. Sizeable immigration has brought increases in skilled labour but has also proved to be challenging, calling for continued focus on integrating new migrants.
Domestic demand will be supported by negative interest rates, a confidence enhancing decrease in unemployment, and better external market conditions. Consumer prices should edge up after several years of deflation, mostly driven by global commodity prices. The current account surplus will persist, even as somewhat stronger domestic demand boosts imports.
The Paris-based organisation predicted global growth rates will rise to 3.5 per cent in 2017 and 3.6 per cent in 2018 from a recent low of 3 per cent in 2016, its lowest since 2009.
This improving outlook slightly is more optimistic than the organisation’s report last November, which put 2017’s growth at 3.3 per cent. The prospective expansion of the world economy still falls short of rates seen before the financial crisis when it used to exceed 4 per cent.