Swiss Watch: 3Q GDP Up

After more than an entire year of negative economic growth, the Swiss economy finally pulled out of the recession during the third quarter and chalked up 0.3% GDP growth. This translates to an annualized 1.3% economic contraction, which was less than the estimated 1.5% GDP decline. Heck, the -1.3% annualized GDP is miles better than the whopping 2.4% year-on-year contraction in the second quarter! Components of the GDP show that the growth was led by improvements in private consumption, increased government expenditures, and rising exports.

Economists say that Switzerland exited the recession faster than anticipated as recovering European demand and a stabilized Swiss franc allowed exports to surge. In fact, net exports rebounded by 2.6% in the third quarter after sliding down by 2.2% in the previous quarter. Exports of goods during the period outpaced imports by 3.6% to 3%. Exports of services, which finally broke its 4 quarter losing streak, also outrun imports by 0.3% to -0.8%.

Total exports makes up about 56% of the Switzerland’s output with net exports contributing about 9.2% to its GDP. And just in case you’re wondering: This is the highest net exports contribution among the 8 major economies in the world! This also shows that exports managed to stay resilient despite the absence of intervention and the strong CHF.

Of course, the Swissy was bolstered even higher with the news of Switzerland’s economic growth. No surprise there. Since the positive number mirrors an upbeat activity in the economy, a lot of investors would be attracted to invest there. Consumers would also be encouraged to spend a little more. And what do investors and consumers need to join the party? Yes… the Swissy. Hence, the higher demand for the currency. This was reflected in the USDCHF’s price action when it fell to around 1.0000 yet again.

Now, with the CHF embracing parity with the dollar, the possibility of currency intervention lurks around the corner. But while this may have been highly probable in the past, I don’t believe it’s a likely option right now. SNB Chairman Jean-Pierre Roth recently said that the bank will have to adjust its current monetary policies to keep the medium to long term inflation in check. This is a big clue that the bank will keep its hand out of the market in terms of intervention because weakening the currency would place more inflationary pressures on the economy.

Still, government officials have pointed to the labor market as a potential obstacle for the Swiss economy. Yet, didn’t the latest unemployment report show a dip in the unemployment rate from 4.2% to 4.1%? I know, I know… this may just be a one month wonder. But given the strong internal and external demand, rising consumer and business confidence, and the fact that Jean-Pierre Roth and his merry men feel that there is no longer a need for further stimulus, I’m going to go on a limb and say that Switzerland could enjoy more economic growth in the coming months.

That being said, let’s all enjoy the wine and cheese – Switzerland has joined the recession-free party!

  • mechanical skeleton watch

    Swiss watch such a great component growth and it improve the private consumptions of the rising exports. It officially terms weakening of the inflationary economy.