The Swiss economy grew in the third quarter of 2023 with help from the services sector, although manufacturing continues to drag.
Gross domestic product (GDP) in Switzerland for the third quarter (Q3) of 2023 came in on Friday morning at 0.3%, a step up from -0.1% the previous quarter, as well as above the 0.1% market consensus.
This figure was largely supported by the services sector performing better-than-expected, with the manufacturing sector also helping somewhat.
The Swiss economy also saw growth of about 0.9% year-on-year, which was also higher than the 0.5% expected by market forecasts.
The Swiss government has also revealed that it estimates 1.3% economic growth for 2023, as well as a 1.2% growth in the next year. However, these are both quite a step below Switzerland’s previous long-term average growth rate of 1.7%.
The Credit Suisse manufacturing purchasing managers’ index (PMI) and the Swiss procure.ch for November climbed up to 42.1, rising from 40.6 in October. This was largely in line with analyst expectations of 42.
Production increased from 40.4 in the last month to 46.6, whereas order books jumped from 35.2 in October to 38.1 this month. However, with Swiss employment still at its lowest since October 2020, the manufacturing sector may see some struggles in the next few months and could potentially need to hire more workers.
Purchasing volume also fell for the thirteenth month in a row, as the economy still deals with slowing demand domestically. European Union demand has also been flagging, due to higher interest rates and slowing economic growth. This could work as a bit of a cap on both Swiss GDP and manufacturing, as the EU is Switzerland’s largest export market.
The Swiss Franc rejoiced due to November’s positive GDP growth, causing the USD/CHF currency pair to slump to 4-month lows at 0.8684. The Swiss National Bank, however, may step in, if the Franc becomes much stronger, due to it impacting export markets negatively.
The GDP report also warned that the “international environment remains challenging”, which could be due to a mix of high inflation, weakening demand and increased geopolitical risks. However, there are now increased chances that the European Central Bank may potentially cut interest rates sooner than previously expected, maybe even from April 2024 onwards.
This would depend entirely on the upcoming inflation, GDP, labour market and retail sales reports for the Eurozone. The ECB has consistently been more cautious than market forecasts in the last few months, warning against the risks of cutting rates too much or too soon. Due to this, the Swiss National Bank could also potentially follow the ECB’s cue regarding its own monetary policy.