More than 100,000 people took part in the “bike to work” challenge

More than 100,000 people took part in the “bike to work” challenge
More than 100,000 people took part in the “bike to work” challenge

Household spending, until now one of the driving forces of the Swiss economy, is expected to slow down in the coming months and exhaust its post-pandemic recovery. Swiss growth must nevertheless remain solid and inflation controlled.

“Consumption has been the driving force of the Swiss economy over the past two years,” UBS economists recalled in a study on Tuesday. This economic component should still contribute to growth this year, but to a lesser extent than in 2022 and 2023.

In their projections, UBS specialists are indeed counting on a gross domestic product (GDP) increase of 1.3% this year, after +0.7% in 2023. Next year, GDP is expected to increase by 1.5%.

Private consumption, which had accelerated by 2.1% in 2023, is expected to grow by only 1.2% in 2024 and 2025, while exports – the other engine of the Swiss economy – are expected to increase by 2.1% this year and 3.9% next.

To explain the anticipated slowdown in household spending, UBS experts point to the exhaustion of the desire to spend observed after the coronavirus pandemic. An aggravating factor is the sharp increase in health insurance premiums expected for next year, which will weigh on the purchasing power of individuals.

Towards a new reduction in the key rate

Inflation is expected to remain under control, with prices expected to rise by 1.2% this year, after 2.1% in 2023. Next year, consumer prices are expected to accelerate by just 1.0%, according to the bank’s projections. The sharp decline in energy prices explains this downward trend, as well as low utilization rates.

Geopolitical risks – with the uncertain outcome of the legislative elections in France and the presidential election in November in the United States – are likely to weigh on the franc. Considered a safe haven, the Swiss currency could find itself valued against the euro. UBS thus foresees the euro-franc currency pair at 0.92 by June 2025, compared to 0.9725 currently, a boon for purchases in the eurozone but an additional burden for Swiss exporters.

With expected interest rate cuts in the United States making the franc more attractive against the greenback, the dollar-franc pair is expected to move around 0.81 in June 2025, compared to 0.898 currently.

“If the Swiss economy returns to balance next year, the SNB should keep its key interest rates stable at 1%, after a final cut in September 2024,” said UBS Switzerland chief economist Daniel Kalt. The Swiss National Bank is thus expected to lower its key interest rate for the third and final time this year by 0.25 percentage points.

This article was published automatically. Sources: ats / awp

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