— Zürich, 18. April 2023, FiPAX —

The Swiss economy appears to have made a splendid start to the year. In comparison to the previous quarter, there was a 0.5 percent growth in the Gross Domestic Product (GDP). The previous quarter had witnessed a stagnant Swiss GDP. Moreover, the growth was well-diversified across different sectors. Private consumption increased, but interestingly, the demand didn’t rise for food or traditional retail goods. Instead, there was a surge in demand for travel, vehicles, leisure, entertainment, culture, and personal services. The manufacturing sector also saw improvements in the first quarter of 2023 compared to the previous one, but it remained below the level seen in the same period of the previous year. International trade was highly active, although it’s important to be cautious as the statistical adjustments for sporting events could affect the numbers. These figures are still estimations provided by the State Secretariat for Economic Affairs (SECO), which includes complex factors like transit trade or international sports events in its calculations, leading to potential statistical discrepancies. In some cases, these discrepancies can even change the GDP’s sign post factum.

However, what matters most currently is the significant shift in the economic environment, primarily driven by interest rate hikes. As we know, interest rate adjustments don’t yield immediate effects, and indicators often remain stable for a while. But eventually, there is a more substantial correction of the economy. The USA is leading the way, having experienced the most aggressive and rapid interest rate increases in its history by the central bank. From my perspective, the USA stands out as the most vulnerable candidate among major economies. The banking system is far from stable, and many consumers are living paycheck to paycheck or even relying on loans, heavily dependent on a robust job market. The service sector also appears to be facing challenging times, as indicated by surveys, moving closer to stagnation. Now, everything depends on private consumption.

China is also witnessing a slowdown in its economy. The central bank recently reduced the benchmark interest rate for the first time in 11 months, although only by a marginal 10 basis points, with the clear aim of stimulating economic growth. China is grappling with increasing economic difficulties, especially within its own borders. The youth unemployment rate (16-24 years old) in Chinese cities reached a record 20.8 percent in May. The situation is unlikely to improve as millions of college graduates will enter the already tense job market in the coming months. This leads us to question whether China will ever regain its position as the world’s economic locomotive, given the current absence of significant economic impulses from either the USA or China.

The situation in Europe is not much better. While production is running smoothly after resolving global supply bottlenecks, recent developments have darkened the horizon. Currently, more is being produced than ordered, leading to depleting inventories. This scenario is no different in Switzerland, where order backlogs are melting away even faster. While the supply side is relaxing, concerns on the demand side persist. Historically, such instances have led to corrections in the industry being followed by recessions in the service sector, resulting in overall economic downturns. Looking at Switzerland’s Purchasing Managers’ Index, the prospects do not appear promising. Of course, this assumes that the years distorted by the effects of COVID-19, energy crises, supply bottlenecks, conflicts, and the return of inflation do not entirely reshape the economic landscape. While not entirely impossible, it seems more like a fairy tale. It is more probable that we will witness more pronounced signs of slowdown in the near future. The markets have been waiting for this for some time now, and though it may be postponed, it won’t be canceled. The signs of an impending recession are becoming evident.