Dominic Lobalu can run in Swiss colors

Dominic Lobalu can run in Swiss colors
Dominic Lobalu can run in Swiss colors

The growth of Swiss gross domestic product (GDP) should be penalized by the weak economy in the euro zone this year. On the other hand, inflation should remain within the Swiss National Bank’s target of 0% to 2%, UBS economists anticipate.

GDP growth is expected to reach 1.3% this year, then 1.5% in 2025, with experts from the three-key bank betting on an improvement in the European economy which should support Swiss industry.

“Swiss inflation has fallen significantly over the past 12 months, as food and energy prices have stabilized and there have been few second-round effects,” the report said on Tuesday. These effects, i.e. wage increases again leading to price increases, are not expected to be significant for the coming quarters. UBS specialists therefore anticipate inflation of 1.2% in 2024, then 1% in 2025.

Two rate cuts from the SNB

UBS predicts that the Swiss National Bank (SNB) will lower its key rate by 25 basis points in June and September, to 1.00%, compared to the current 1.50%. This forecast “assumes that inflation will remain comfortably within the target range and that economic growth is expected to remain below trend.”

However, two elements could spoil the party. Inflation was above expectations at 1.4% year-on-year in April and above the March level of 1.0%. Another upside surprise in May could prompt the SNB to keep its key rate unchanged at its June meeting and delay the next rate cut until September.

Moreover, if inflation in the Eurozone and the United States does not slow sufficiently, the central banks concerned could postpone their first rate cuts. As the franc would likely depreciate further against the euro and the dollar, the SNB could also decide to wait until September for its easing.

As market expectations already reflect two interest rate cuts by the guardian of the franc, the potential for a fall in yields is limited. Experts estimate that rates on 10-year Swiss government bonds will move sideways around the current level of 0.7% in the coming months.

Furthermore, Swiss consumption remains supported by a solid labor market. Although it has recently lost significant momentum, unemployment remains at a very low level in the country. The unemployment rate is expected at 2.3% this year, then 2.4% in 2025.

This article was automatically published. Sources: ats/awp

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