Why is Switzerland expected to avoid a recession as European economy slows?
As experts predict economic recessions for countries across Europe, there is still optimism that Switzerland will avoid the crisis. New data from the Economic Research Center (KOF) at ETH in Zurich has forecast that, while the economy will slow in the new year, Switzerland will not fall into recession.
Swiss economy will slow but avoid recession, say experts
According to the university, the growth of Gross Domestic Product (GDP) in Switzerland will slow to 1 percent a year in 2023, after growing by 2,3 percent in 2022. While this is a marked slowdown, it will mean that Switzerland will avoid stagnation or a recession - a period where GDP declines for six months in a row.
Speaking to 20 minuten, the KOF said it was optimistic that unemployment would remain low and inflation would start to fall in the new year. This was echoed by the State Secretariat for Economic Affairs and the BAK Economics Research Institute, which said that "a recession can just about be avoided."
This is in stark contrast to other European nations: economists in the Netherlands have already predicted a mild recession before the new year and German economists say the federal republic is headed for a recession as well. While Germany (10 percent) and the Netherlands (14,5 percent) see double-digit inflation, inflation in Switzerland remains at around 3,5 percent a year.
How will Switzerland avoid a recession as European economy struggles?
The question remains: as other European countries struggle, why is Switzerland likely to avoid a recession?
Switzerland has a more secure supply of energy
According to the KOF, while Switzerland is vulnerable to energy shortages, it still has the power and finances required to save energy, find new suppliers and utilise gas storage facilities abroad. In addition, BAK chief economist Marin Eichler noted that the alpine nation produces a large amount of hydroelectric and nuclear power, and that the products produced by entrepreneurs and international companies in Switzerland are less energy intensive, meaning the Swiss economy can cope better with energy shortages than other European states.
Strength of the Swiss franc and strong consumer spending
Speaking to 20 minuten, Eichler said that this relative energy security is reinforced by strong consumer spending. Despite a fall in purchasing power, he explained that the lower inflation rate helps prop up consumer spending. The KOF also pointed out that families and individuals in Switzerland tend to have more money stored away in banks, which they can use should there be an emergency.
"The fact that Switzerland has its own currency is another trump card in the fight against the recession," Eichler noted. He explained that a strong franc, which recently achieved record highs against the euro, helps keep inflation low in comparison to other European nations.
People in Switzerland work in crisis-resistant industries
Finally, Chief Economist at the Kantonalbank in Lucerne, Brian Mandt, noted that people in Switzerland are more likely to work in “crisis resistant” industries like medicine and pharmaceuticals. The fact that these industries are less impacted by economic shocks than, for example, German, French and Italian car manufacturers, means that Switzerland can better absorb crises abroad.
Switzerland has a long road ahead
Looking further ahead, the KOF wrote that economic growth should slow in 2023 but normalise during 2024. However, it remains to be seen how future global crises, such as the developing war in Ukraine and possible energy shortages, will modify this forecast.
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