So far, the Swiss economy has performed better than its European neighbors. In fact, although Switzerland's leading economic indicators fell to the lowest level in more than a decade it happened at more gradual pace than elsewhere. Moreover, the impact of credit crunch is likely to be weaker in Switzerland because the country has a large current account surplus and a high savings rate. In addition, the deterioration of inflationary pressures has given recently a lot of room for monetary policy actions. In the last two months, in order to avoid the consumption drop, the Swiss National Bank has cut the 3-month target rate by 175bp. Moreover, even though the unemployment rate accelerated in February, it's still one of the lowest in Europe and below the natural rate of unemployment.
Yet, at Trading Economics we think that the worst is yet to come. The Swiss economy is not completely immune to slowing growth in Europe and in the United States since the export sector constitutes over 50% of GDP. In fact, the recent appreciation of the Swiss franc against the euro is harming foreign sales of products such as machines and precision instruments. Moreover, the Swiss slowdown has followed that of its European neighbors with a lag and the sentiment surveys suggest that this trend is continuing. The Swiss PMI fell again in February, from 35.0 to 32.6, which is new low for the index and based on past correlations, consistent with -0.6%qoq GDP growth. Looking ahead, if the historical correlation with the Euro Area PMI continues to hold, sentiment may deteriorate further as Switzerland, one of the most open economies of the world, gets dragged further by the global downturn.