The economic situation in Switzerland continues to be shaped by major contrasts. While industry continues to suffer from weak global demand for goods and building construction is making little if any headway, providers in the retail and food services sectors are reporting positive numbers. The only important exception within industry remains the pharma sector, which continues to account for a significant share of Swiss growth. As regards inflation, Switzerland is one of the few industrial nations blessed with price stability. Whereas domestic inflation remains above 1 percent, prices for imported goods in particular are pushing the overall rate of inflation well below 1 percent. Given the moderate economic situation, this seems low, which helps explain the SNB’s unusually sharp interest rate cut of half a percentage point in December.

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The US economy continues to be the real engine of growth in the global economy. The main driver of the economy is still private consumption. The mood among companies also improved again somewhat last month. However, in the USA as elsewhere, industry is lagging behind the general economic trend. The inflation trend, on the other hand, is disappointing. Hovering around 3.2 percent, core inflation in the US has been trending sideways for months now. Inflation therefore remains well above the target set by the US Federal Reserve (Fed). Given that wages – the most important cost factor for companies – are currently rising faster than inflation, there is a risk that overly high inflation will set in.

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Europe continues to be disappointing in economic terms. The mood among companies and consumers has again deteriorated. Industry in particular is suffering from the twin burden of a weak global goods cycle and structurally higher energy prices. At the same time, the political situation is fraught, with new elections in Germany and an ongoing crisis in French politics. Nor was there any good news on inflation last month. For the fourth time in a row, core inflation stood at 2.7 percent, while the overall rate of inflation actually rose. In light of these developments, the credibility of the European Central Bank (ECB) with its latest announcement of interest rate changes is gradually beginning to suffer.

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Among the major emerging markets, there has been a general trend towards a weakening economy in recent quarters. If we combine the national leading indicators into an overall index, last month saw the first signs of a reversal in this trend. This is undoubtedly due in part to a continued moderate improvement in Chinese data in December. China still faces major problems, with its real estate market and construction investments in particular continuing to be a cause for concern. However, a slight recovery in core inflation, now at 0.4 percent, does suggest that consumption has also stabilized. It remains to be seen how US President Trump’s first official acts will affect the mood and economy in the People’s Republic.

Growth, sentiment and trend

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