Swiss Economy: 2017 GDP forecasts stable, immigration policy is fundamental

Credit Suisse corrects upwards its growth forecasts for the Swiss economy this year: according to the institute's economists, the gross domestic product will increase by 1.5% this year, versus + 1.0% expected previously. The 2017 estimate remains unchanged, fixed at 1.5%. And the bank warned: stronger expansion is closely related to the immigrants, who are required to increase the workforce.

The Swiss economy will not get back into full swing in 2017 either, due to a lack of momentum among key growth drivers – in particular immigration. These are the conclusions of the Credit Suisse economists in the latest issue of "Monitor Switzerland". 

It is indeed to be expected once again an increase in consumption due to new inhabitants who settled in Switzerland, but this increase according to Credit Suisse will be less than a fifth that of the year before.

Also consumer confidence is suffering from the negative news from Switzerland and abroad, starting with Brexit. This impact should be limited on the Swiss economy, but the benefits for the financial center will be lower than is commonly believed.

According to the bank's experts, investments will not give a greater contribution to growth: low interest rates stimulate the purchase of infrastructure and machinery, but also act as a brake on modest revenue performance and political uncertainties, particularly those related to relationships between Switzerland and the European Union.

"Switzerland needs to preserve its strong locational attractions," says Thomas Gottstein, CEO of Swiss Universal Bank at Credit Suisse. "Major corporations tell us that Switzerland is becoming less important for them. In addition, SMEs fear the overall regulatory framework could worsen." 

For next year, the institute's specialists predict an unemployment rate unchanged of 3.3%. Nominal wages will grow by 0.5%, but inflation is estimated as having the same scope, the actual progression of wages will be nothing. "Given the comparatively sound level of capacity utilization, companies are retaining staff as far as possible," says Oliver Adler, Head of Economic Research at Credit Suisse, "but because of declining margins and profits, companies are seeking to reduce their salary costs."

Construction investment is expected to accelerate in the short term, encouraged by the creation of housing in a context of low interest rates. But the weak increase in population will decrease the demand for rental apartments and offices.

The exports are likely to ease tensions,  thanks to a combination of negative interest rates and foreign currency purchasing by the SNB,  the Swiss franc will depreciate slightly over the course of the year according to their forecasts, unless major upheavals on the international financial markets.

Credit Suisse believes that a return to higher growth is possible in two ways: either through an increase in productivity or an increase in employment. "Growth needs immigration", is the conclusion of analysts. In their view it is indeed unrealistic to compensate for the lack of foreigners with greater use of women and older people. The prospect of this making up for the fall in migration seems rather unrealistic.

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