Investment, consumption to drive Swiss economy; inflation to return to positive territory in 2017

Swiss inflation is likely to accelerate above zero in the quarters ahead, helped by oil prices; however, renewed upward pressures on the Swiss franc are expected to drag out the long period of low inflation, noted Societe Generale in a research report.

The Swiss National Bank is not expected to take any additional easing action. Only if financial stability is seriously threatened, then the central bank might take an action. Meanwhile, investment and household consumption are expected to mainly contribute to the GDP growth.

Swiss net trade’s outlook continues to be fogged by uncertain and volatile trade statistics. However, overall, net trade is expected to contribute negatively over the whole period. Due to the Brexit uncertainty shock, the Swiss economic growth outlook has been revised down by 0.2 percentage points over the forecast period, said Societe Generale.

“We now expect real GDP growth to reach around 1% this year and 1.5 percent next (1.3% and 1.7%, respectively, before). This implies a further widening of the output gap and a gradually rise in the unemployment rate,” added Societe Generale.

Meanwhile, headline inflation is likely to be at -0.4 percent in 2016 and return to positive territory in 2017 reaching 0.7 percent. Core inflation is expected to largely follow the headline inflation’s pattern. The Swiss National Bank might begin normalizing interest rates in the second half of 2017 when inflation returns to positive territory, according to Societe Generale.