Economy: Growth on hold

The Swiss economy had a strong first quarter, mainly on the back of its export industry. It benefited from orders brought forward ahead of the imposition of punitive US tariffs. As expected, economic momentum clearly weakened in the second quarter. We can’t attribute this slowdown solely to the anticipated downturn in exports. Domestic demand has also lost momentum. Retail sales have weakened significantly, and sentiment in the services sector has also deteriorated considerably of late. Inflation has little role to play in this development. Switzerland is one of the few countries where prices have remained stable. Pressure on prices is now so low that, on 19 June, the Swiss National Bank lowered its policy rate to zero.

Growth, sentiment and trend

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In the USA, the slowdown in economic growth continues. There is considerable caution, particularly in consumer spending and investment decisions. Real household consumer spending has stagnated recently and momentum in the construction sector has continued to weaken. What’s more, most companies are not expecting their business activities to pick up any time soon. So far, however, there has been no significant decline in economic output. One factor behind this is the high ongoing capacity utilization on the labour market. Also worth noting is that the tariffs announced by President Trump, and in some cases already imposed, haven’t triggered any real resurgence in inflation to date. The related cost increases look to have been absorbed primarily through margin adjustments by companies.

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Economic performance in the eurozone remains below average. Weak growth in its two major economies, Germany and France, and the uncertainties surrounding US trade tariffs continue to have a dampening effect. This economic weakness is also reflected in the European Central Bank’s (ECB) data on pay negotiations, which is indicating only very slight wage increases. Against this backdrop, inflation has at least gradually moved closer to the ECB’s target range. Core inflation, which excludes volatile price components outside the control of the central banks, is currently at 2.3 percent. 

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Economic data from China, the world’s second-largest economy, has recently improved slightly. China’s performance impacts the Asian economic area in particular, making it a key factor in determining momentum in the emerging markets. Sentiment in industry has improved somewhat, while core inflation – a good indicator of economic momentum in China – has also moved beyond its lows. Nevertheless, the economic situation remains fragile. For example, low investment and import volumes suggest that weak demand is likely to persist for the time being. One reason for this is the cautious economic policy response to date. China’s government hasn’t yet provided any significant monetary or fiscal policy stimulus. What’s also striking is that China hasn’t devalued its own currency despite trade tensions with the USA. In earlier periods, this was an instrument used specifically to bolster the export economy.

Growth, sentiment and trend

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