Economic outlook: the tide is turning
Inflation has peaked, not only in the United States but also in Europe, including here in Switzerland. The end of key rate increases is in sight; once stabilised, key rates could even begin dropping. Such a scenario, however, depends on the economic health of these regions, which are still suffering from high energy prices and now restrictive financing conditions. Nevertheless, the fundamentals are solid, the job market is buoyant and productive business investment and household consumption are helping to keep the economic fabric resilient. In 2023, annual growth is expected to reach 0.9% and inflation 1.9% in Switzerland, compared with 0.8% and 1.9% respectively in Geneva.
From fighting inflation to supporting the economy
Central bank efforts to combat inflation have finally borne fruit. In the United States, the European Union and Switzerland, the (at times drastic) tightening of interest rates has successfully curbed inflation. But given the current situation in Europe – which is less favourable than in other regions – the ECB is still raising its key rate, while the Fed has already slowed its pace and the SNB could do the same. Controlled inflation and wage growth are delaying a possible fall in interest rates, despite a more fragile economy.
Economic activity slowing but resilient
Despite the moderation in commodity prices, economic growth in general is still being held back by high interest rates, which are hampering international trade, also adversely affected by the strength of the dollar. The Swiss economy, on the other hand, is showing signs of resilience, buoyed by productive business investment and household consumption, which is remaining steady despite (under control) inflation. This trend can be explained by a dynamic labour market, which is also in transition with the gradual exit of the baby-boomer generation.
Property prices beginning to normalise
Housing prices are now gradually easing, signalling a return to normal. Prices had sharply risen in 2020-21 as a result of the pandemic, which combined a strong appetite for property investment with historically low mortgage rates. While the rise in interest rates is not entirely unconnected with this phenomenon, the 2019 pre-pandemic levels have not yet been reached and are unlikely to any time soon. In fact, vacancy rates in the above-mentioned regions, and in Geneva in particular, are at their lowest ever, reflecting the constant demographic pressure brought on by the country's attractive qualities and the moderate number of new builds. At the same time, the low unemployment rate seems to indicate that a property crisis is not imminent, especially as a significant proportion of mortgages (75%) have been locked in on fixed maturities.