Economy: Poorer economic outlook

The fact that manufacturing industry has been contending with declining revenues in most developed economies has been making the headlines for some time. Sentiment in the services sector has now also deteriorated significantly in the USA. Low growth rates are anticipated. The outlook for the Swiss economy is also subdued. In contrast, the latest data from China suggests a slight recovery.

  • Unemployment in Switzerland remained at an 18-year low in September. Wages are currently growing at 0.5 percent a year, while inflation remains at a very low level. Despite this positive development, the retail sector is still struggling. This is attributable to structural factors: despite a growing population, the Swiss retail sector recorded its best year back in 2010. Since then, revenues have fallen by around 0.5 percent a year. Sentiment surveys indicate that the mood among Swiss consumers has been very subdued for some time. The only exception is the sustained demand for healthcare services. As industry is also contending with declining revenues and the outlook remains rather gloomy (the purchasing managers’ index for the manufacturing industry remains very low at 44.6 points), Switzerland currently lacks a pillar of growth. Growth rates will barely rise above zero over the coming quarters.

    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. Economic growth fell significantly in Switzerland recently. Although there may be a slight improvement in the next quarter, growth is still below the long-term trend.
    Source: Refinitiv, PostFinance

    Economic growth fell significantly in Switzerland recently. Although there may be a slight improvement in the next quarter, growth is still below the long-term trend.

  • The economic outlook in the USA further deteriorated last month. Growth in industrial production has slowed significantly over the past 12 months and is now trending at around zero. The leading indicators point to no change: the purchasing managers’ index for the manufacturing sector (ISM Manufacturing) stands at just 47.8  points. In contrast to Switzerland, retail sector revenues have remained very robust in the USA so far. Revenues have risen year on year since 2010. Increasing consumer spending has played a major role in supporting economic growth in the USA over recent quarters. The encouraging October figures on consumer sentiment do not suggest a trend reversal yet. However, there is greater pessimism among service providers. The ISM Non-Manufacturing index, which records sentiment outside of manufacturing industry, dipped to 52.6  points in September. This represents a three-year low.

    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. As the indicator for the services sector fell recently – in addition to that for industry – our growth indicator points to strong negative momentum.
    Source: Refinitiv, PostFinance

    As the indicator for the services sector fell recently – in addition to that for industry – our growth indicator points to strong negative momentum.

  • The problems in European industry, especially in Germany, have not affected consumer sentiment yet. Retail sector revenues are robust almost across the board and there is no indication of a trend reversal yet. The survey of managers from the services sector, construction and retail is slightly more pessimistic. Despite the fact that the proportion of managers indicating positive sentiment was also predominant in October, its prevalence has declined since 2018. This proportion also fell in Spain and the Netherlands – the countries that posted the highest growth in the eurozone in the second quarter. This means that even the driving forces are losing momentum within the eurozone, pointing to a further slowdown in growth.

    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. Both effective economic growth and our economic indicator suggest negative momentum. In spite of this, growth still lies above long-term trend growth.
    Source: Refinitiv, PostFinance

    Both effective economic growth and our economic indicator suggest negative momentum. In spite of this, growth still lies above long-term trend growth.

  • How is China faring? Economists are divided in their views on this question of great relevance to the global economy. On a positive note, increasing production figures are currently being observed in various industrial sectors. The sentiment data from industry also points to a recovery. This means that China is currently going against the prevalent global trend of declining industrial production. Data from the construction sector also indicates a slight upturn.

    The South African economy is currently performing much worse. Growth in Africa’s second largest economy has long been below potential growth of around 2 percent. Various ratings agencies have also downgraded the country’s credit standing in recent weeks due to its high budget deficit.

    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. An economic slowdown can be seen in almost all emerging markets. Our indicator does not show the same negative momentum found in the developed economies. The indicator even rose again recently thanks to China.
    Source: Refinitiv, PostFinance

    The economic outlook in the emerging markets overall has deteriorated over recent months. However, the economic climate indicator does not show the same negative momentum found in the developed economies. The indicator even rose again recently thanks to China.

Global economic data

Indicators Switzerland USA Eurozone UK Japan India Brazil China    
Indicators
GDP Y/Y 2019Q1
Switzerland
1.0%
USA
2.7%
Eurozone
1.3%
UK
2.1%
Japan
1.0%
India
5.8%
Brazil
0.5%
China   
6.4%
Indicators
GDP Y/Y 2019Q2
Switzerland
0.2%
USA
2.3%
Eurozone
1.1%
UK
1.3%
Japan
0.8%
India
5.0%
Brazil
1.0%
China   
6.2%
Indicators
Economic climate
Switzerland

USA

Eurozone
UK

Japan
+
India
+
Brazil
+
China   

Indicators
Trend growth
Switzerland
1.5%
USA
1.7%
Eurozone
1.0%
UK
1.6%
Japan
0.9%
India
6.6%
Brazil
0.9%
China   
6.3%
Indicators
Inflation
Switzerland
0.2%
USA
1.8%
Eurozone
0.9%
UK
1.7%
Japan
0.2%
India
3.2%
Brazil
3.4%
China   
2.8%
Indicators
Key rates
Switzerland
–0.75%
USA
1.90%
Eurozone
0.0%
UK
0.75%
Japan
–0.10%
India
5.15%
Brazil
5.50%
China   
4.35%

Source: Refinitiv, PostFinance

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