Banking crisis, inflation, rising interest rates – the Swiss economy has been struggling with many challenges since the beginning of the year. Our business journalists will keep you up to date with a comprehensive status report every three months.
This content was published on April 16, 2023
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1) Growth forecast slightly revised upwards
In mid-March, the State Secretariat for Economic Affairs (Seco) raised its growth forecast for Swiss gross domestic product slightly to 1.1%, compared to 1% in its last estimate in mid-December. For 2024, the federal economists now expect growth of 1.5% instead of the previously expected 1.6%. According to communicationexternal link by SECO, China is currently experiencing a strong recovery, while the “energy situation in Europe has eased in recent months”. However, core inflation in the major industrialized countries has developed less favorably than expected, which is likely to lead to tighter monetary policy and slow global demand.
As far as inflation is concerned, the Swiss National Bank (SNB) forecasts from the end of March are still relatively high. On March 23, the SNB raised its key interest rate by 50 basis points to 1.5%. According to the SNB forecast, inflation should reach 2.6% in 2023 and 2% in 2024 and 2025.
2) Banking sector in shock after CS debacle
The year began with a nightmare for the Swiss financial center when Credit Suisse, the country’s second largest bank, had to be saved from bankruptcy and was bought out by its rival UBS. This world‘s first merger of banks considered “too big to fail” results in a giant with almost CHF5 trillion in assets under management. This transaction carries numerous risks and requires a great deal of tact to avoid heightened panic in the banking sector, which could spread to global equity markets.
This development has damaged Switzerland’s reputation as a reliable and conservative financial center. The shareholders and bondholders have been abandoned by the government. The decision by the Swiss banking supervisory authority (Finma) to cancel so-called AT1 bonds worth 16 billion Swiss francs was met with fierce criticism and could lead to lawsuits from aggrieved investors.
Parliament must now examine what went wrong and whether the authorities were not vigilant enough before the collapse of CS. Several political parties are calling for additional banking regulations or for Credit Suisse’s Swiss operations to be spun off into a separate entity.
3) Nestlé stumbles, commodity traders rejoice
Inflationary pressures are particularly affecting companies in the food and beverages sector. Although Nestlé is growing strongly mainly in emerging markets, the company saw its 2022 net profit fall by 45%. In February, CEO Mark Schneider said Nestlé plans to raise prices later this year to offset rising costs.
Commodity traders, on the other hand, are happy about the price increase. Glencore reported a 60% increase in pre-tax profit to over $34 billion on high oil and coal prices. Trafigura, in turn, saw its net income skyrocket from $3.1 billion in 2021 to $7 billion in 2022. As commodity markets return to normal levels of volatility, profitability is expected to be lower this year.
The industry is also under pressure from Swiss authorities, who said in March they want more transparency and control over their role in trading Russian oil and commodities.
4) Strong start for Swiss tourism
Switzerland Tourism, the national organization representing the tourism sector, draws a positive balance of the winter. The number of overnight stays in the hotel industry for the entire winter season is not yet available, but in the months of November, December and January the industry recorded a very high frequency of Swiss guests with an increase in overnight stays of around 15%. The number of foreign tourists was also almost back to the level of 2019, the last full season before the pandemic, with a decrease of only 4%.
The return pace of guests from Southeast Asia was particularly strong, falling just short of 2019 levels in 2022 with a fall of just 3.2%, while guests from the Gulf States fell by 5% and North America by 8.1%.
Switzerland Tourism is expecting a veritable boom in tourists from countries such as Indonesia, Malaysia, Singapore and Thailand over the next few years. Many guests from China, Japan, Korea and India are also expected to return in the coming months. “Chinese tourists will probably not come to Switzerland again until summer. Bottlenecks in the areas of flight capacities, Schengen visas and accommodation in Switzerland and, above all, high flight prices are still slowing down travel flows,” says Véronique Kanel from Switzerland Tourism.
5) The watch industry continues on the road to success
Nothing seems to be able to stop the euphoria in the Swiss watch industry at the moment. After a record-breaking 2022, watch exports continued to rise at the beginning of the year. According to the latest available statistics from the Federation of the Swiss Watch Industry (FH), exports rose by 12.8% to CHF 3.8 billion in the first two months of the year compared to the same period last year. All major markets recorded increases. The USA (+20%) remains the most important sales market for Swiss timepieces. China, which was one of the last countries to lift Covid-19-related restrictions, returned to the black in February and could become a key growth driver again in the coming months.
Nevertheless, the upper price segment remains the main source of success: watches that are sold for more than 7,500 francs account for more than three quarters of the export value.
6) Pharmaceutical industry is looking for new best sellers
In February, Novartis announced that sales are expected to decrease by 2% through 2022, mainly due to negative currency effects (at constant exchange rates, an increase of 4% would have been recorded). As a consequence, CEO Vas Narasimhan’s remuneration was reduced by 25% to a total of CHF 8.5 million. The company also plans to continue selling its Sandoz generics division, which would result in the loss of 8,000 jobs, including 1,400 in Switzerland.
Thomas Schinecker, the new head of Roche, announced major investments in digital technologies and in research and development on his first day of work in mid-March. He explained that no job cuts are planned this year.
Edited by Virginie Mangin, translated from French by Christoph Kummer
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