Switzerland is in the throes of its best growth in years, showing little sign yet of taking a hit from the mounting global trade dispute or an appreciating currency.
The export-oriented economy expanded at an above-average pace for a fifth consecutive quarter in the three months through June, outpacing the neighboring euro area. The biggest boost came from manufacturing, which for years suffered due to the strength of the franc.
“Enjoy the party while it lasts,” said UBS economist Alessandro Bee. “The first half of the year was very strong, but for the second half of the year and for 2019, we’ve gotten a bit more cautious. One reason is certainly the risks from the trade dispute, also there’s the matter of Italian politics.”
In the euro zone, the trade dispute has begun to leave its mark, with German factory orders down or a sixth month this year in July amid a slump in investment-goods demand from abroad. Business confidence in the currency bloc has slipped to the lowest in a year, and in a sign that the European Union-U.S. truce on tariffs might not hold, President Donald Trump told Bloomberg last week the EU was “almost as bad as China, just smaller.”
Switzerland’s State Secretariat for Economic Affairs said that “so far, the international trade dispute has had hardly any impact” on local momentum, which clocked in at 0.7 percent in the three months through June, beating the median forecast in a survey.
Manufacturing benefited from buoyant foreign demand and a weaker currency versus recent years.
For the Swiss National Bank, while the current solid growth will be welcome, it’s unlikely to hasten any move to increase interest rates, currently at a record low. That’s because the franc has been climbing again, spurred by market jitters about Turkey and Italy, reversing the trend seen until earlier this year.
The franc appreciated on Thursday to break through 1.13 versus the euro again. At 9:55 a.m. Zurich time, it was up 0.2 percent to 1.1279, close to the strongest since July 2017.
Because the euro area is Switzerland’s top destination for exports, there a risk of a spillover of the transatlantic spat. While a factory index for August was near a record high, a Credit Suisse expectations survey has dropped in seven of the last eight months.
There was another negative harbinger on Thursday in a UBS small and medium-sized businesses indicator, which showed declines in August in foreign orders and production from a year earlier.
“While the economy looks set to continue growing at a decent pace, inflationary pressures are likely to remain subdued,” Jack Allen, senior European economist at Capital Economics, said. With fuel costs and exchange rate effects weighing on headline inflation, “We expect the SNB to keep policy exceptionally loose for a long time, and think that it will leave interest rates unchanged until 2020.”
