Economy: Inflation remains a challenge

Inflation has differed regionally in recent months. In the eurozone, the weak economy enabled the core rate to be reduced significantly once again to 3.1 percent. By contrast, the fall in inflation in the USA has slowed considerably due to strong economic growth. The US core rate only dropped from 4.0 to 3.9 percent from October 2023 to January 2024. There is a risk that US inflation may stabilize at a high level if the economy remains strong. The situation is now more favourable in the eurozone. However, high pay growth rates and stubborn services inflation mean caution is advisable there, too. A major exception is Switzerland, where inflation recently fell to 1.2 percent.

  • The figures on the Swiss economy published recently by the State Secretariat for Economic Affairs (SECO) show  slight growth once again of 0.3 percent for the fourth quarter of 2023. Investment activity by companies remains alarmingly weak. Equipment investment fell significantly for the third time in a row and is now 6 percent lower than in the prior-year quarter. Only companies’ increase in inventory and the sharp rise in state consumption had a supportive effect in the last quarter. For once, foreign trade did not make a positive contribution. In particular, the otherwise robust chemical and pharmaceutical sector suffered a decline in value creation. However, the recovery in tourism led to strong growth in the hospitality sector. The development of Swiss inflation remains encouraging at the moment. In February, overall inflation fell slightly again and stands at 1.2 percent. In light of the weak economy, the risk of another surge in inflation is low. 

    Growth, sentiment and trend

    In percent

    The graphic shows the actual annual growth in Swiss gross domestic product (GDP) since 1995, its long-term trend and a leading economic climate indicator. The leading indicator points to economic growth of around –1 percent in the near future.
    Source: Bloomberg
  • The economic data on the USA was mixed at the start of the year. After improving considerably in January, there was a clear downturn in business sentiment in February. The significant decline in the growth of income and spending among private households came as a surprise. The US Federal Reserve’s short-term forecast on economic growth in the first quarter was revised downwards considerably in light of this situation. However, current growth continued to exceed the long-term trend level. The level of capacity utilization on the labour market is still very high. In this climate, significant progress on tackling inflation is not expected over the coming months. Core inflation has stagnated at 3.9 percent over recent months, which is double the US Federal Reserve’s inflation target. 

    Growth, sentiment and trend

    In percent

    The graphic shows the growth in real US GDP, its long-term trend and a leading economic climate indicator since the mid-1990s. The leading indicator points to stagnating economic growth (0 percent) in the near future.
    Source: Bloomberg
  • At the start of the year, there was widespread improvement in sentiment amongst European industrial companies for the first time since the recession in the manufacturing sector began. This trend continued in February. This means there are growing signs that the situation has bottomed out in the European industrial sector. The only exceptions were the German-speaking countries of Germany and Austria. In Germany in particular, industrial companies’ assessment of their own business activities deteriorated significantly again. This suggests the recession in the eurozone’s biggest economy may continue for the time being. A positive effect of the sluggish European economy is the weakening of inflation. The core rate of inflation has continually fallen over recent months and now stands at 3.1 percent. Even though persistent high inflation in the services sector and strong wage growth rates mean a note of caution is still advised, the situation has become much more favourable for the European Central Bank (ECB). However, it still has not reached its target.

    Growth, sentiment and trend

    In percent

    The graphic shows the growth in real GDP, its trend and a leading economic climate indicator for the eurozone since 1995. The leading indicator points to stagnating economic growth (0 percent) in the near future.
    Source: Bloomberg
  • China’s economy, the biggest amongst the emerging markets and the second largest in the world, remains weak. This is clearly illustrated by the inflation rate, which is strongly tied with economic performance. The inflation rate fell again in January and now stands at –0.8 percent. At 0.4 percent, the core rate is at an extremely low level. The targets recently published by the National People’s Congress, which aim to achieve growth of 5 percent with inflation of 3 percent, appear overly optimistic given the situation. These goals may be achievable only with strong fiscal or monetary policy stimulation. In contrast, India’s economy provided a positive surprise. The world’s fifth largest economy has grown strongly by 8.4 percent over the past four quarters.

    Growth, sentiment and trend

    In percent

    This graphic shows the growth in real GDP, its trend and a leading economic climate indicator for an average of emerging markets since 1995. The leading indicator points to economic growth of between 4 and 5 percent in the near future.
    Source: Bloomberg

Global economic data

IndicatorsSwitzerlandUSAEurozoneUKJapanIndiaBrazilChina
Indicators
GDP Y/Y 2023Q3
Switzerland
0.4%
USA
2.9%
Eurozone
0.1%
UK
0.2%
Japan
1.7%
India
8.1%
Brazil
2.0%
China
4.9%
Indicators
GDP Y/Y 2023Q4
Switzerland
0.6%
USA
3.1%
Eurozone
0.1%
UK
–0.2%
Japan
1.0%
India
8.4%
Brazil
2.1%
China
5.2%
Indicators
Economic climate
Switzerland
USA
Eurozone
=
UK
+
Japan
+
India
Brazil
China
+
Indicators
Trend growth
Switzerland
1.3%
USA
1.6%
Eurozone
0.8%
UK
1.7%
Japan
1.1%
India
5.2%
Brazil
1.6%
China
3.8%
Indicators
Inflation
Switzerland
1.2%
USA
3.2%
Eurozone
2.6%
UK
4.0%
Japan
2.2%
India
5.1%
Brazil
4.5%
China
0.7%
Indicators
Policy rates
Switzerland
1.75%
USA
5.5%
Eurozone
4.5% 
UK
5.25%
Japan
–0.1%
India
6.5%
Brazil
11.25%
China
4.0%

Source: Bloomberg

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