Economy: central banks react to subdued economic outlook

Growth prospects remain moderate, and the leading indicators suggest that industry, in particular, will take some time to overcome its global weaknesses. Central banks around the world are using all means possible to counteract slowing growth. The European Central Bank has taken particularly substantial measures, relaunching its bond-buying programme and cutting interest rates.

  • 0.2 percent, or is it 0.9 percent? The official figures indicate that the growth of the Swiss economy year-on-year almost ground to a halt in the second quarter. If the greatly fluctuating revenues of the international sports organizations headquartered in Switzerland are distributed equally over the quarters when calculating national income, the economy grew by at least 0.9 percent. Whichever way we examine the situation, economic growth has slowed. Were it not for rising demand for healthcare services and booming exports in the pharmaceutical industry, growth in the second quarter would have been much weaker. There is no indication of a recovery over the coming months. The deterioration in the growth prospects in the sales markets and the stronger Swiss franc have dampened the export outlook. The SNB is focusing on further foreign exchange interventions to boost the economy and has refrained from cutting interest rates again for the time being, despite the fact that other central banks have recently taken this step.

    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 the leading indicator points to a slight improvement for 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.

  • Even before the announcement of new talks between China and the USA, the most important sentiment indicator for industry, ISM Manufacturing, dipped below the 50 mark in August for the first time since 2016. A value of below 50 indicates a contraction in industrial production. This means the USA has followed various other countries, where there have been signs of a downturn in the industry for some time. The ISM fell in particular because companies’ order intake decreased significantly. Business leaders have attributed this to the trade dispute and the global economic slowdown. Consumer confidence has also worsened. However, consumption has so far remained extremely robust. As a result, the US central bank is not currently anticipating a recession. Nevertheless, it has recently lowered interest rates once again in order to prevent a further downturn.

    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. Economic growth in the USA remains above the long-term trend, which means it is higher than in most other developed economies. However, momentum is on a downward trajectory.
    Source: Refinitiv, PostFinance

    Economic growth in the USA remains above the long-term trend, which means it is higher than in most other developed economies. However, momentum is on a downward trajectory.

  • Europe received some good news last month. Firstly, a hard Brexit in October now seems less likely after the latest developments. Secondly, the free-spending government in Italy has been replaced. The markets have reacted positively to this news. However, the fundamental problems have not changed. There is still no solution to the Brexit dilemma in sight, and Italian public debt remains at an exorbitantly high level of 128 percent of GDP. The short-term outlook for the eurozone has not changed, either. The leading indicators for industry remain at a low level, despite slightly better figures in August. The European Central Bank has responded to this slowdown by pushing the penalty interest for bank deposits further into negative territory and relaunching its bond-buying programme this autumn.

    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: Refinitiv, PostFinance

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

  • The emerging markets could not escape the global economic slowdown. This continues to be evident in China, where growth in industrial production dropped to a new historic low in August. India’s performance was also unexpectedly disappointing. Its economy grew by just 5 percent in the second quarter, falling well below potential growth – in other words, growth that the economy can sustainably achieve. However, in India it is more domestic factors that are holding back growth, such as financing problems for banks, which are restricting lending.

    In Brazil, meanwhile, the indicators have improved slightly. The economy grew by 0.4 percent in the second quarter, after contracting again in the first quarter. Inflation also appears to be under control: the annual rate fell to 3.2 percent after reaching almost 5 percent in April, which led the central bank to set the key rates at historically low levels.

    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. Growth is now below the long-term trend in the emerging markets. An economic slowdown can be seen in almost all emerging markets.
    Source: Refinitiv, PostFinance

    Growth is now also below the long-term trend in the emerging markets. An economic slowdown can be seen in almost all emerging markets.

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
1.8%
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
1.2%
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
2.0%
Eurozone
1.3%
UK
1.8%
Japan
0.8%
India
6.9%
Brazil
0.6%
China   
5.8%
Indicators
Inflation
Switzerland
0.3%
USA
1.8%
Eurozone
1.0%
UK
2.1%
Japan
0.6%
India
3.2%
Brazil
3.2%
China   
2.8%
Indicators
Key rates
Switzerland
–0.75%
USA
2.12%
Eurozone
0.0%
UK
0.75%
Japan
–0.10%
India
5.40%
Brazil
6.00%
China   
4.35%

Source: Refinitiv, PostFinance

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