Forecast update. The latest reading of the «KOF Surprise Indicator» confirms that fears of a considerable slowdown of the Swiss economy have not been exagerated. The indicator's new value of -0.030 is not only the worst in two years but also implies that year-on-year expansion has cooled down to 1.9 percent in the last quarter of 2018.
In spite of the weak final quarter the overall 2018 performance breaks records by logging an anual rate of growth of about 3.1 percent, the strongest expansion since 2007.
Sources: Own calculations, forecast for 2018(4), fitted values otherwise, *seco releases (left: September 6, 2018, right: November 28, 2018).
Note: Forecast obtained by best nowcasting model.
Outlook. A wave of not so good news for the world economy and for Switzerland has made observers wary of a possible end to the decade-long boom. Last year's final quarter in particular was shaken by a stock market quake that left investors and enterprises wondering if that was the prelude to something bigger coming up soon.
Early 2019 has so far shone a brighter light than previously expected. Stock markets have partly recovered from the December slump and no further negative surprises have muted expectations.
Nevertheless, excessive private debts due to mounting mortgages, soaring real estate prices and the prospects of ongoing international tariff disputes as well as a hard Brexit are likely to take their toll on the Swiss economy.
In face of those challenges the Swiss National Bank must not give in to populist demands for interest rate hikes which would send the overvalued Swiss Franc higher still and unduly burden Swiss industries. Instead, the government should stand ready to use its deep pockets for cusioning the bumpy ride that may lay ahead.
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