Swiss Consumer Sector Contracts
The Swiss consumer sector is showing some apparent softening according to the key Consumption Index just published by UBS. The August update of this broad indicator, which covers everything from car sales to consumer sentiment, has fallen to 1.35 from the revised July figure of 1.67.
This weakening in the consumer sector is coming at an unwelcome time for the Swiss economy that has begun to struggle with falling exports a general reluctance for economic growth to take hold. The second quarter GDP numbers surprised economist when they were announced at 0.0% growth for the second quarter, expansion more in the region of 0.6% was anticipated. The fall off in growth was very notable following the 0.5% posted during the initial quarter of this year. The Swiss government target of 2.0% GDP expansion for the full year of 2014 now looks very much in doubt barring something exceptional in the final six months of the year.
The Swiss National Bank (SNB) appears to be out of options as far as a monetary stimulus is concerned, interest rates are already at rock bottom. Exchange rate policy however is one avenue that is still open to the SNB and they are not unwilling to use this, particularly as one of the current challenges facing the Swiss Economy is trade related. The SNB last week reconfirmed that the cap on the Franc against the Euro, that was put in place three years ago, would not only remain but would continue to be aggressively defended. The fall off in exports to the Eurozone, one of Switzerland’s major trading partners, due to weakening demand in the EU in general is the main contributing factor to deteriorating Swiss trade figures. The SNB’s artificial currency cap at the very least provides some level of hedging to Switzerland’s Eurozone trade partners and this, for now, provides an element of support for Swiss exports.
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