The EU commission has cut the Euro Area growth forecast for 2023, and with an annual average inflation projected to peak at 7.6% in the Euro Area – and even higher at 8.3% in EU, there are more than just a few murmurings of a recession looming for the coming year.
To evaluate the economic forecast for Switzerland for 2023, we begin by looking at the definition of the word recession and according to the Oxford English Dictionary, “Recession is a period of temporary economic decline, during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters”. Previous examples indicate that this can lead to layoffs, as investment slows and production falls. However, some of the latest forecasts are showing more optimism again – especially for Switzerland.
The Swiss Institute for Business Cycle Research (KOF) at the ETH University in Zurich forecasts that Gross Domestic Product will grow by only one percent in 2023 compared to 2.3 percent in 2022. However, Switzerland is not threatened by a recession and there are a number of reasons for that, not least the high value of the Swiss franc, combined with the relatively low inflation rate.
The CPI for Switzerland for September 2022, currently stands at 105.5 which implies a fairly “healthy” inflation rate (compared to the EU average of over 120). In fact, the inflation rate year-on-year for Switzerland is 3.2% (compared to 3.5% for August 2022). Inflation from August 2022 to September 2022 stood at -0.2%. Compare this to the EU average of 9.1% for the same period and Switzerland looks in pretty good shape.
The KOF is also optimistic in forecasting that the unemployment rate will “most probably” remain at a low level and inflation could in fact, fall again. This sentiment is backed by the State Secretariat for Economic Affairs – which also assumes that Switzerland can avoid a recession in 2023.
So what are some of the main reasons why Switzerland is in a good position compared to other countries in Europe?
1. Efficient energy use
- As Switzerland produces large quantities of hydroelectric and nuclear power, it is less dependent on other countries for energy. This is according to Martin Eichler, chief economist of BAK Economics.
- Switzerland is also a very efficient county requiring relatively little energy to produce its own products and services.
- The KOF assumes “that there will be no threat of rationing despite the uncertain gas supply this coming winter. This is because Switzerland can save gas, find new suppliers and fall back on gas storage facilities in neighbouring countries”.
2. Domestic consumption supports the economy
- Although purchasing power in Switzerland has fallen year-on-year to due inflation, this is not as much as in other countries in Europe according to Martin Eichler.
- Inflation as we have seen is relatively low. This is a strong advantage for Switzerland because it supports private consumption within the country.
3. Strong Swiss franc
- The Swiss Franc is no longer pegged to the Euro currency. This helps Switzerland to keep inflation low.
- According to Brian Mandt, chief economist at Luzerner Kantonalbank “Most of the push for inflation comes from abroad.” And as we can observe, inflation in Switzerland is lower than in surrounding countries.
4. Pharmaceuticals – resistant against economic crisis
- The Swiss economy is diverse and strong in those sectors resistant to economic downturn, such as the Swiss Pharma sector.
- All goods are not created equal and demand for products such as cars, is more elastic than is the case with patented drugs. The pharmaceutical industry is usually less affected in an economic downturn due to this price stability.
All roads lead to Switzerland?
Recession could be looming in 2023 for some countries in the EU and elsewhere, but for Switzerland the picture seems to be more optimistic. Depending on which source you look at, there are around 70’000 job vacancies in Switzerland currently, and several sectors are experiencing labour shortages. These include ICT, Finance, Engineering, Education.
With the Free Movement of Persons within the EU including Switzerland, most EU and EFTA nationals are now able to get work permits to work in Switzerland without any problems.
As we move towards the end of 2022 and into a new year, the economic forecast for Switzerland seems to indicate the economy is holding steady and should not slide into recession in 2023. This could be the perfect time to consider a move to Switzerland for skilled workers and the right mindset.
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