Swiss Economy Contracts for 1st Time in Nearly 2 Years
The Swiss economy unexpectedly shrank 0.2 percent on quarter in the three months to September 2018, after a 0.7 percent growth in the previous period and missing market expectations of a 0.4 percent expansion. It was the first quarterly contraction since the fourth quarter of 2016, as net trade contributed negatively to the GDP and investment in equipment slumped while household consumption was almost unchanged.
11/29/2018 11:43:21 AM
On the expenditure side,
exports of goods tumbled 4.2 percent in the third quarter (vs -0.3 percent in Q2) and imports declined at a softer 2.4 percent (vs -1.1 percent in Q2). In addition, exports of services dropped 0.6 percent (vs -0.1 percent in Q2), while imports were unchanged (vs -0.1 percent in Q2).
At the same time, private households barely increased their consumption expenditures (0.1 percent vs 0.2 percent in Q2), showing little willingness to make major purchases in light of weak real wage development. General government consumption decreased slightly (-0.1 percent vs 0.2 percent), while investment in construction showed no growth (vs 0.6 percent in Q2). In addition, investment in equipment and software fell sharply in almost all categories (-2.0 percent vs 0.5 percent). Only investment in machineries was slightly higher than in the previous quarter.
On the production side, both industrial and service sectors contributed to the negative quarterly result. Value added in manufacturing declined 0.6 percent after growing significantly over the past quarters. In the energy sector too, value added decreased 2.2 percent after two extremely positive previous quarters, with the dry summer resulting in production downtime at hydropower plants. Within services, value added in trade declined 1 percent following an already negative previous quarter, driven down by both retail and wholesale. The financial sector also recorded a minor drop, with the steady expansion lasting for several quarters being interrupted. In contrast, the positive development of the previous quarters persisted in the business services (0.7 percent) and health sectors (0.5 percent). The sluggish growth in services reflects, on the one hand, the generally subdued foreign demand for Swiss services. On the other hand, the weak domestic economy in the course of the subdued consumption climate in Switzerland also affected the third quarter performance..
Year-on-year, the GDP grew by 2.4 percent in the third quarter, following an upwardly revised 3.5 percent expansion in the previous period and missing forecasts of a 2.9 percent advance. It was the weakest annual growth rate since the third quarter of 2017.