Economy: political risks lead to slowdown in growth

As the leading sentiment indicators had suggested, there has been a significant slowdown in global economic growth. While trade is faltering, consumers are still providing support. The leading indicators do not point to a recovery. Central banks are trying to counteract developments by cutting interest.

  • In July, the sentiment indicator for industry carried out by Credit Suisse and the consultancy firm Procure reached its lowest level since 2009. This reveals that companies are pessimistic about the coming months. The fact that the Swiss franc fell below the 1.10 mark against the euro again at the end of July makes the situation even more challenging for the export-driven sectors. The fall in the exchange rate means the Swiss franc has appreciated. This is also unwelcome news for the Swiss National Bank (SNB), as the Swiss franc’s appreciation squeezes inflation due to lower import prices. Prices for imported goods in Swiss shopping baskets fell by 1.5 percent in July, while overall inflation now stands at just 0.3 percent compared to the previous year. Concerns over the economic outlook and low inflation presumably led the SNB to buy foreign currencies on a larger scale for the first time in over two years, in order to weaken the Swiss franc.

    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. Due to the global economic slowdown, the growth rate in the second quarter of 2019 is expected to fall below the long-term trend.
    Source: Thomson Reuters Datastream, PostFinance

    Economic growth in Switzerland has continually exceeded trend growth in recent quarters. However, due to the global economic slowdown, a growth rate below trend growth has become likely for the second quarter.

  • The USA’s growth figures were once again pleasing for the second quarter, albeit lower than in previous quarters. However, a closer look reveals that the US economy grew only thanks to a rise in private and government consumer spending, while investments stagnated and net exports declined. US exports fell for the third month in a row, reflecting the trade disputes with China and other countries. Concerned about the economic downturn, the Federal Reserve, the US central bank, cut interest rates in July for the first time since the end of the global financial crisis and indeed the first time in over ten years. Fortunately, concerns over the economy have still not yet filtered through to consumers. Retail sales performed unexpectedly well in July, and consumer sentiment remains high.

    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. It illustrates that US economic growth has been exceptionally strong over recent months. However, the current economic climate suggests that GDP growth is expected to slow down in the near future.
    Source: Thomson Reuters Datastream, PostFinance

    In the USA, economic growth still remains above the long-term average. However, the leading economic climate indicator points to weakening momentum.

  • The eurozone grew by 0.2 percent in the second quarter 2019 and thus only half as quickly as in the first quarter. While Spain and the Netherlands continued to post pleasing growth rates, the eurozone was held back by Germany. The German economy weakened in the second quarter, due partly to a decline in industrial production and falling exports. Consumption also had a stabilizing effect in the eurozone. Historically, consumer spending has often followed the industry trend. As there is currently no indication of a rapid recovery for industry, it is anticipated that consumer spending will also be affected over the medium term. This would lead to further loss of momentum for growth in the eurozone.

    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. Economic growth in the eurozone in the second quarter came in at around 1 percent below the long-term trend.
    Source: Thomson Reuters Datastream, PostFinance

    Economic growth in the eurozone was below the long-term trend in the second quarter. The leading sentiment indicators are currently too optimistic. Consumer mood is not fully reflected in consumer behaviour.

  • Amongst the emerging markets, Argentina currently stands out from the crowd. Alarmed by the poor showing of President Macri in the preliminary elections, investors fear a return of the left-wing populist government – which brought the country close to ruin the last time it was in office – in the autumn. When the results were announced, the Argentinian peso depreciated by over 30 percent against the dollar for a time.

    China’s recent industrial production figures were surprising. Coming in at around 5 percent in July, growth reached its lowest level for 17 years. Growth in consumer spending has also slowed down significantly over recent years, standing at around 8 percent in July. Even so, the constant rise in consumer growth over recent years indicates that China is increasingly shifting from an export-driven to a consumer-oriented economy. The trade balance is now almost even.

    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. Our current sentiment indicator points to growth of between 4 and 5 percent in the emerging markets in the near future.
    Source: Thomson Reuters Datastream, PostFinance

    Sentiment weakened in the emerging markets last month. The current economic climate in the emerging markets as a whole means that little growth impetus can be expected for the global economy.

Global economic data

Indicators Switzerland USA Eurozone UK Japan India Brazil China    
Indicators
GDP Y/Y 2018Q4
Switzerland
1.5%
USA
3.0%
Eurozone
1.2%
UK
1.4%
Japan
0.3%
India
6.6%
Brazil
1.1%
China   
6.4%
Indicators
GDP Y/Y 2019Q1
Switzerland
1.7%
USA
3.2%
Eurozone
1.2%
UK
1.8%
Japan
0.9%
India
5.8%
Brazil
0.4%
China   
6.4%
Indicators
Economic climate
Switzerland

USA

Eurozone
UK

Japan
+
India
+
Brazil
+
China   

Indicators
Trend growth
Switzerland
1.5%
USA
2.0%
Eurozone
1.2%
UK
1.8%
Japan
0.8%
India
6.9%
Brazil
0.6%
China   
5.8%
Indicators
Inflation
Switzerland
0.3%
USA
1.8%
Eurozone
1.1%
UK
2.1%
Japan
0.7%
India
3.2%
Brazil
3.2%
China   
2.8%
Indicators
Key rates
Switzerland
–0.75%
USA
2.40%
Eurozone
0.00%
UK
0.75%
Japan
–0.10%
India
5.40%
Brazil
6.00%
China   
4.35%

Source: Thomson Reuters Datastream, PostFinance

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