Economy: Spotlight on US economic weakness

The Swiss economy faces challenging times. With a weak global economy, tariff burdens in the important US sales market and the growing political headwinds faced by the pharmaceutical industry, the outlook for export-oriented industry is gloomy. Notwithstanding these challenges, business activity is bearing up. Although sentiment in industry remains subdued, it has stabilized. Exports also remain stable, albeit at a below-average level. However, this weakening of the domestic economy is now also weighing on economic growth as a whole. Both consumer confidence and the mood among service providers focused on the domestic market remain at unusually low levels, although with an inflation rate within the central bank’s target range, Switzerland is at least one of the few Western economies enjoying price stability. 

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The slowdown in US economic growth is continuing into the third quarter. While consumer spending has risen slightly and sentiment in the services sector has improved recently, the growing weakness in the labour market raises questions about the sustainability of these trends. In the last three months, only about one-fifth as many jobs were created as in the same period last year. June saw the first decline in job growth for quite some time. Past experience indicates that declines in employment lasting several months tend to mark the beginning of a recession. Against this backdrop, the US Federal Reserve also appears to be open to further interest rate cuts, despite the fact that inflationary momentum has picked up again recently.

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Economic performance in the eurozone remains subdued. This is consistent with the retrospective downward adjustment of growth in Germany for the second quarter of 2025, with the figures now showing that over the course of the year so far, the currency area’s biggest economy has again seen no growth. Other hard economic data, such as production figures and capacity utilization by companies, also point to a continuing period of stagnation. On a positive note, however, the business outlook for companies has brightened somewhat recently, raising hopes that a slight recovery may be at hand – a prospect likely bolstered by the significant monetary policy easing undertaken by the European Central Bank (ECB), which has cut its policy rate four more times already this year and is currently holding it at 2.15 percent.

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The economic indicators for the emerging markets paint a mixed picture. With growth rates of over 5 percent, India, Indonesia and Vietnam in particular are currently enjoying strong economic momentum. Overall, however, the performance of the emerging markets weakened somewhat last month. Brazil, South Africa and Turkey in particular are a cause for concern, as they are not only experiencing below-average growth but are also struggling with excessively high inflation. China, by far the biggest emerging market economy, is also lagging behind its potential. Despite recent signs of a recovery, reluctance among private investors means we’re unlikely to see any major surges in growth.

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