Source: JP Morgan, Bloomberg, BMI its franc cap in early ----, the Swiss National Bank (SNB) has periodically intervened to weaken the franc, including im- mediately after the UK referendum. Nevertheless, the nominal effective exchange rate (NEER) has headed gradually higher over the course of ----, a trend we expect to continue as the SNB remains averse to large-scale interventions to weaken the franc. ...Private consumption growth in Switzerland fell to -.- in ---- from -.- in ----, although this was in the context of an uptick in unemployment (from very low levels) and broad-based slowdown in economic activity. More tellingly, the OECD estimates that Switzerland s household savings rate continued rising in ---- after the introduction of negative rates, while mortgage growth has slowed in recent months despite record low borrowing costs. One possibility is that, faced with rising economic uncertainty, consumers are opting to save more in order to compensate for lower returns. ...However, a cool- ing off of the housing market would arguably reduce structural macroeconomic risks facing the Swiss economy.
...Owing in large part to its competitive manufacturing industries and export-orientated growth model, the Swiss economy has consistently outperformed the eurozone over the past decade. Over the next -- years we expect the Swiss consumer to play an increasingly important role in driving growth. This trend will play out slowly over the coming decade, although the decision by the Swiss National Bank (SNB) in January ---- to abandon the Swiss franc s floor versus the euro will hasten the transition away from export-dependent growth. Nevertheless, export-oriented industries will remain important cogs in the Swiss economy, while the current account surplus will remain relatively large even as it narrows over the long term, supporting easy credit conditions and employment in the domestic economy. Private Consumption: Private consumption is expected to play a more prominent role in driving growth in the coming years relative to the last decade. ...Gross Fixed Capital Formation: We expect business invest- ment to provide a key support to the Swiss economy over the medium term. This will be a function of a recovery in eurozone demand and persistent current account surpluses, which will continue to foster investment in the export-orientated manu- -- Business Monitor International Ltd www.bmiresearch.com
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