Economic Snapshot: Switzerland

It’s been a while since I made an economic roundup for Switzerland. And with good reason, too, since many Swiss economic reports are only available in Deutsch (German) or Français (French). Good thing I speak a little of both, huh?

And since the Swiss franc was one of the major winners last week due to safe-havens flows after the Fed’s inaction led to uncertainty, I thought that it would be a good idea to make an economic roundup for Switzerland as well. And here it is!

Note: As with all Economic Snapshots, there are nifty tables and a summary at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. However, the bullet points provided highlight the underlying details and trends that give the numbers their proper

Growth

  • Switzerland’s economy grew by 0.6% quarter-on-quarter in Q2 2016 (+0.3% previous).
  • This is the fastest quarter-on-quarter growth rate in six quarters.
  • Year-on-year, the Swiss economy jumped by 2.0% (1.1% previous).
  • This is the fastest annual growth in six quarters.
  • In addition, this marks the second consecutive quarter that annual growth has strengthened after bottoming out at +0.5%.
  • Looking at the components for quarterly growth, consumer spending flat-lined (+0.5% previous) while government spending jumped by 1.7% (+0.2% previous).
  • Investment in equipment fell by 0.9% after the large 3.7% increase back in Q1.
  • Meanwhile, investment in construction fell for the second consecutive quarter (-0.3% vs. -0.2% previous).
  • Trade was a positive contributor, thanks to exports increasing by 4.6% to an 11-month high of CHF 119.03 billion while total imports fell 3.3% to a 3-month low of CHF 95.22 billion.

Inflation

  • Headline month-on-month CPI fell by 0.1% in August after falling by 0.4% in July.
  • The headline year-on-year reading also fell 0.1% after easing by 0.2% during the previous month.
  • The annual reading has been in negative territory for 24 months running.
  • But on a more upbeat note, the current reading is the “best” reading in 21 months.
  • Annual inflation has been steadily recovering after it bottomed out at -1.4% back in August-November 2015.
  • As for the annual core reading, it was essentially unchanged.
  • Regarding the specific components for the headline annual reading, the lower costs for healthcare (-0.5% vs. -0.2% previous) and transportation (-2.9% vs. -2.1% previous) were the main drags.
  • The main drivers, meanwhile, were the higher prices for food and non-alcoholic drinks (+1.3% vs. +1.2% previous), as well as clothing and footwear (+3.3% vs. +0.7% previous) and restaurants and hotels (+0.1% vs. -0.4% previous).

Business Conditions & Sentiment

  • According to Konjunkturforschungsstelle (KOF), its leading economic barometer significantly dropped lower from a 29-month high of 103.55 to an 8-month low of 99.83.
  • It’s also the first negative reading since December 2015.
  • According to commentary from KOF, the “deteriorating outlook in the Swiss manufacturing, banking and tourism sectors as well as international business situation account for the recorded overall drop of 3.7 points in the value of the Barometer.”
  • Further commentary noted that “the worsening outlook is visible in all (electrical, wood- and metal-processing, textile, machine-building and special) but three industries (chemical, food-processing and paper)” in the manufacturing sector.
  • Moving on, KOF’s business situation index climbed a bit higher from 9.87 to 10.96 in August.
  • This means that overall business conditions in Switzerland are satisfactory, but has improved slightly.
  • Business conditions are in Switzerland are not homogeneous, though.
  • The wholesale industry, financial services, and construction reported good or satisfactory business conditions.
  • Manufacturing and retail trade, meanwhile, reported deteriorating conditions in August.
  • Credit Suisse seems to disagree with KOF since the Credit Suisse manufacturing PMI reading for August climbed to 51.0 from 50.1.
  • However, that’s only due to seasonal adjustments.
  • Looking at the unadjusted PMI reading, it dropped from July’s 51.0 to 48.8 in August, which is a 9-month low.
  • The unadjusted reading reading is therefore more in line with the signals from KOF.
  • The August reading for the ZEW-CS economic sentiment index is also in line with KOF and the unadjusted reading from Credit Suisse since it dropped to -2.8.
  • Looking forward, however, things look a bit more optimistic since the reading recovered to 2.7 in September.
  • Commentary from ZEW-CS noted that the reading means that “The share of respondents forecasting a positive economic development for the coming six months is only slightly higher than the share of experts expecting a negative development. 60 per cent of the experts expect the Swiss economy to remain unchanged in the coming six months.”

Consumer Spending & Employment

  • During the August period, the headline jobless rate in Switzerland ticked higher from 3.1% to 3.2%.
  • The uptick puts an end to the downtrend in the jobless rate, with the peak at 3.8% back in January 2016.
  • According to the Regionalen Arbeitsvermittlungszentren (Regional Employment Centers or RAV), the uptick was mainly due to an influx of 2,642 job seekers during the month.
  • There was also some job shedding in August since the number of unemployed people increased by 3,548 over the month to 142,858 persons.
  • As of August, the native Swiss (Schweizer) comprised 56% of Switzerland’s labor force while the remaining 44% were foreigners (Ausländer).
  • The jobless rate for both groups deteriorated, with the Swiss jobless rate ticking higher from 2.3% to 2.4% while the jobless rate for foreigners ticked higher from 5.4% to 5.5%.
  • In July, the seasonally-adjusted reading for real retail sales turnover in Switzerland increased by 0.2% month-on-month (-0.2% previous).
  • Likewise, the core reading (fuel is excluded) also increased by 0.2% after dipping by 0.3% previously.
  • This is the first monthly increase for both the headline and core readings in seven months.
  • No detailed breakdown yet, but the recovery was due to the 0.9% rebound in the sale of food, beverage, and tobacco (-0.8%).
  • Although the 0.3% increase in retail sales of non-food and non-fuel goods helped as well.
  • Year-on-year, retail trade turnover slumped by 2.2% in July.
  • On a more upbeat note, it’s a softer slump compared to June’s 3.5% drop.
  • The core reading also slumped by 2.2% on an annual basis, which is not as bad as the previous month’s 3.4% slide.
  • Switzerland’s annual headline retail sales readings have been in negative territory for 12 months running as of July.
  • The core reading, meanwhile, has been printing negative numbers for six consecutive months.

Trade

  • Switzerland’s trade surplus widened from CHF 2.81 billion to CHF 3.02 billion in August.
  • This ends two straight months of shrinking trade surplus.
  • However, the details aren’t as upbeat, since the bigger surplus was due to imports dropping much harder than exports.
  • Exports fell by 9.06% month-on-month to a 12-month low of CHF 16.05 billion.
  • This marks the second straight month of contracting exports, with the previous reading coming in at -3.19%.
  • Imported, meanwhile, plunged 12.25% to a 7-month low of CHF 13.03 billion, ending two months of increasing imports.

Swiss Economy: Growth

Swiss Economy: Inflation

Swiss Economy: Business Sentiment & Conditions

Swiss Economy: Consumer Spending & Employment

Swiss Economy: Trade

Putting it all together

Switzerland’s Q2 GDP grew at the fastest pace in six quarters on both an annual and quarterly basis, which is great. However, the SNB noted during its monetary policy announcement that economic growth will moderate in the second half of the year, “partly owing to a temporary weakening of growth in Europe.”

Looking at the available economic data for Q3, headline retail sales saw the first monthly increase in seven months. Consumer spending in Q3 is therefore starting out on a strong footing. And while the trade surplus widened in August, it also dipped to a three-month low in July, so it’s not clear yet if trade in Q3 would be a driver. Also, the details of the larger trade surplus are not very appealing.

As for inflation, Switzerland’s severe inflation problem appears to be fading. The most recent annual headline reading is even the “best” in 21 months. And for reference, annual headline inflation has been in negative territory for 24 consecutive months now.