The Swiss internal economy – in other words, economic development based on domestic demand – is increasingly becoming a cause for concern. Swiss consumer sentiment remains at crisis levels, retail sales are trending sideways at best and the Swiss services sector recently reported a sharp downturn in business activity. This is despite the fact that the Swiss labour market is at full capacity and inflation has weakened substantially over recent months. However, the rise in the cost of living, part of which is not reflected by the inflation rate, is increasingly putting strain on household budgets. The Swiss export industry is showing more positive signs at the moment. Order volumes of industrial companies improved recently and goods exports did not fall further in February.

Growth, sentiment and trend

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Last month’s economic data from the USA was encouraging. A clear improvement in industrial sentiment was particularly significant. For the first time in 18 months, US industrial companies are expecting to see an upturn in their business activity. Also positive were the figures on consumer behaviour, which has stabilized slightly despite rising default rates on credit card debt. The robust economy is reflected in sustained pressure for higher prices. This means inflation has barely fallen recently. In March, core inflation remained unchanged at 3.8 percent, almost double the US Federal Reserve’s target. In this climate, an imminent cut to the policy rate appears increasingly unlikely. 

Growth, sentiment and trend

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Sentiment has improved slightly in many eurozone economies recently. Both consumers and companies have a more positive outlook than a few months ago. The impetus that may stabilize the economy appears to be mainly coming from abroad. Trade within the eurozone remains very weak while export activity in countries outside of the economic area is gradually rising again. In addition, the German economy has clearly not stabilized yet. German companies reported a much gloomier business outlook again recently. Encouragingly, progress is being made on combating inflation in the eurozone as a whole. Unlike the USA, price pressure has eased significantly of late, with core inflation falling to 2.9 percent. That means the first policy rate cuts are within reach for the European Central Bank (ECB). 

Growth, sentiment and trend

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The recovery in China, the biggest emerging market economy and the second largest in the world, has been sluggish. Sentiment data collected from companies by the state did improve considerably last month and inflation moved away from its lows. However, the sentiment indices produced by the private sector do not point to any significant trend reversal. The Chinese central bank’s first tentative interest rate hikes have not created any sustained impetus yet. This is reflected in the growth rates of bank loans and the overall financing of the economy, which continue to fall. More positive economic data is currently coming from other large emerging markets such as the Philippines, Indonesia and Vietnam. These countries have achieved growth of 5 percent or more in the past year.

Growth, sentiment and trend

In percent