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ECONOMY

Swiss central bank expects ‘negative’ growth for 2020


The Swiss National Bank said on Thursday that the coronavirus pandemic had worsened the short-term outlook for the country’s economy.

Published: 19 March 2020 13:44 CET
Swiss central bank expects 'negative' growth for 2020

The outlook for the Swiss economy is grim. Photo by Fabrice Coffrini / AFP

 “The downturn in the international economy and the measures to contain the 
virus will lead to a marked decline in economic activity in Switzerland… GDP 
growth is likely to be negative for the year as a whole,” Swiss National Bank (SNB) said in a statement. 

It added that it will “be working closely with the Federal Council to provide the best possible support to the economy”.

The SNB added that it is maintaining its current policy rate and interest on sight deposits at the SNB at −0.75 percent.

The central bank will try to lessen the economic impact of the Covid-19 epidemic while intervening heavily on currency markets to slow the appreciation of the safe-haven Swiss franc.

Switzerland’s goal is to keep the Swiss Franc from appreciating because the country relies heavily on exports with the European Union. But when the franc rises, it makes Swiss products less competitive — that is, too expensive — in eurozone markets. 

The frenzy unleashed on the financial markets by the health crisis has strengthened more than ever the safe haven status of the franc. Last week alone, the National Bank's interventions in the foreign exchange market increased by 4.5 billion. This is the largest weekly increase since March 2017.

In 2011, the central bank had capped the franc at 1.2 euros, devaluing the Swiss currency by 8 percent. The SNB took this drastic step by printing billions of francs and using them to buy foreign money, pushing its foreign currency reserves to record highs.

However, in 2015, the SNB abandoned the cap, saying it was no longer justified. The franc's value immediately soared by around 30 percent.

In January 2015, the SNB had acquired foreign currency for 86.1 billion francs, then 67.1 billion in 2016, and 48.2 billion in 2017.

Only two months ago, experts predicted a positive outlook for the Swiss economy in 2020, attributing it to a strong manufacturing industry, increase in foreign demand and private consumption, as well as the recovery in the construction sector.

The pandemic has had devastating effects on Switzerland’s economy, threatening the existence ofsmall and medium-size companies, which constitute 99 percent of the country’s businesses.

Last week, the Federal Council announced a 10-billion-franc package to help companies and employees to make it through the crisis.

READ MORE: UPDATE: Switzerland declares state of emergency over coronavirus https://www.thelocal.ch/20200316/switzerland-declares-state-of-emergency-over-coronavirus

 


 

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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