What the current state of Switzerland’s economy means for you
If you read Swiss news, you may have come across reports about the economic slowdown and even a risk of recession. Should you be worried about these events impacting your life?
When it comes to economic forecasts for Switzerland, the news is not clear-cut: while some things are expected to remain difficult, others are looking up.
On the positive front, gone — at least to some extent — are the major worries the country’s population faced in 2022: high inflation rate and uncertainty over energy supply.
As The Local reported exactly a year ago, in August 2022, Switzerland’s inflation rate stood at 3.4 percent, driving the prices of many consumer products and services upward.
At the same time, availability of natural gas, mostly imported from Russia, was at risk.There were growing concerns that Switzerland would face power outages and blackouts, and that electricity would become scarce during the coldest months of 2022 and 2023.
“We are not an island, so the war in Ukraine and the global energy crisis also affect Switzerland. In this context, there is no certainty about what awaits us”, the then Energy Minister Simonetta Sommaruga said at the time.
Fortunately, these worst-case scenarios did not happen, and Switzerland has had sufficient supply though energy prices have gone up significantly (read more about this below).
This was then. What about now and the foreseeable future?
Here too, there is good and bad news.
On the good side, Switzerland’s economy as a whole has remained stable and less volatile than it has been across the EU.
READ ALSO:
- Why does Switzerland defy economic downturns better than its neighbours?
- How is Switzerland managing to keep inflation so low?
Inflation, for instance, has dropped considerably to below 2 percent — much lower than the 5.3 percent rate recorded across the eurozone in July.
In terms of employment, the market is booming as well.
Swiss unemployment rate is very low — 1.9 percent — versus 5.9 percent in the EU.
In fact, Switzerland has been experiencing a labour shortage. This inability to fill vacant positions in various sectors is a double edge sword: it is bad for the economy in terms of productivity, and therefore, ultimately, for Switzerland’s prosperity.
However, it is definitely a good thing for anyone looking for a job: not only will you have more options to choose from, but also employers who are willing to pay more to attract skilled staff, along with offering other perks like flexible work hours.
Swiss workforce (here the construction sector) is booming. Photo by Fons Heijnsbroek on Unsplash
READ ALSO: What Swiss employers are doing to recruit hard-to-find staff
Another positive piece of news for Switzerland’s residents is that while the EU has entered a ‘technical recession’ — a term to describe two consecutive quarters of economic decline — Switzerland is not on the same path.
"Currently, we can't speak of a recession and we don't expect that in the coming months either," economist Claude Maurer said in an interview with Swiss media, adding that despite lingering inflation, "consumption in Swiss households remains robust".
Raiffeisen Bank economist Domagoj Arapovic also expects the domestic economy to continue to grow.
"According to our forecasts, private consumption should remain stable," he said, which should boost the growth of Switzerland’s gross domestic product (GDP).
All this is promising, but the news is not all rosy.
On the flip side, Switzerland’s residents will face some higher costs:
Rents
After the Federal Housing Administration raised reference rates to 1.50 percent from June 3rd, another hike — this time to 1.75 percent — by the Swiss National Bank (SNB), also went into effect.
“A rise in the key interest rate leads to a rise in mortgage rates and therefore also in the reference interest rate for rents,” according to SNB’s director Thomas Jordan.
It is not yet known by how much more the rents will rise due to the new reference rate, but it will put further pressure on the tenants already dealing will high costs amid a very tight housing market, especially in large cities.
Tentants are facing higher rents. Photo: Pixabay
Health insurance premiums
Swiss consumers were hit with a substantial increase in premiums of the obligatory health insurance — KVG in German and LaMal in French and Italian — at the beginning of this year: 6.6 percent on average, though in some cantons they rose even more
The hope was that premiums would not go up again in 2024, but this is likely to happen nevertheless.
In fact, not only are they set to increase again, but they may also be significantly more expensive in 2024: a 7.5-increase in costs per insured person is likely next year.
READ ALSO: Why is Swiss health insurance set to get more expensive?
Electricity prices
Even though they already increased sharply in 2023, electricity costs will go up again in 2024.
The expected increase will be around 12 percent, according to the Association of Swiss Electric Companies.
This means that a typical household of four people will pay 30 cents per kilowatt hour for its electricity, against 27.2 cents this year.
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When it comes to economic forecasts for Switzerland, the news is not clear-cut: while some things are expected to remain difficult, others are looking up.
On the positive front, gone — at least to some extent — are the major worries the country’s population faced in 2022: high inflation rate and uncertainty over energy supply.
As The Local reported exactly a year ago, in August 2022, Switzerland’s inflation rate stood at 3.4 percent, driving the prices of many consumer products and services upward.
At the same time, availability of natural gas, mostly imported from Russia, was at risk.There were growing concerns that Switzerland would face power outages and blackouts, and that electricity would become scarce during the coldest months of 2022 and 2023.
“We are not an island, so the war in Ukraine and the global energy crisis also affect Switzerland. In this context, there is no certainty about what awaits us”, the then Energy Minister Simonetta Sommaruga said at the time.
Fortunately, these worst-case scenarios did not happen, and Switzerland has had sufficient supply though energy prices have gone up significantly (read more about this below).
This was then. What about now and the foreseeable future?
Here too, there is good and bad news.
On the good side, Switzerland’s economy as a whole has remained stable and less volatile than it has been across the EU.
READ ALSO:
- Why does Switzerland defy economic downturns better than its neighbours?
- How is Switzerland managing to keep inflation so low?
Inflation, for instance, has dropped considerably to below 2 percent — much lower than the 5.3 percent rate recorded across the eurozone in July.
In terms of employment, the market is booming as well.
Swiss unemployment rate is very low — 1.9 percent — versus 5.9 percent in the EU.
In fact, Switzerland has been experiencing a labour shortage. This inability to fill vacant positions in various sectors is a double edge sword: it is bad for the economy in terms of productivity, and therefore, ultimately, for Switzerland’s prosperity.
However, it is definitely a good thing for anyone looking for a job: not only will you have more options to choose from, but also employers who are willing to pay more to attract skilled staff, along with offering other perks like flexible work hours.
READ ALSO: What Swiss employers are doing to recruit hard-to-find staff
Another positive piece of news for Switzerland’s residents is that while the EU has entered a ‘technical recession’ — a term to describe two consecutive quarters of economic decline — Switzerland is not on the same path.
"Currently, we can't speak of a recession and we don't expect that in the coming months either," economist Claude Maurer said in an interview with Swiss media, adding that despite lingering inflation, "consumption in Swiss households remains robust".
Raiffeisen Bank economist Domagoj Arapovic also expects the domestic economy to continue to grow.
"According to our forecasts, private consumption should remain stable," he said, which should boost the growth of Switzerland’s gross domestic product (GDP).
All this is promising, but the news is not all rosy.
On the flip side, Switzerland’s residents will face some higher costs:
Rents
After the Federal Housing Administration raised reference rates to 1.50 percent from June 3rd, another hike — this time to 1.75 percent — by the Swiss National Bank (SNB), also went into effect.
“A rise in the key interest rate leads to a rise in mortgage rates and therefore also in the reference interest rate for rents,” according to SNB’s director Thomas Jordan.
It is not yet known by how much more the rents will rise due to the new reference rate, but it will put further pressure on the tenants already dealing will high costs amid a very tight housing market, especially in large cities.
Health insurance premiums
Swiss consumers were hit with a substantial increase in premiums of the obligatory health insurance — KVG in German and LaMal in French and Italian — at the beginning of this year: 6.6 percent on average, though in some cantons they rose even more
The hope was that premiums would not go up again in 2024, but this is likely to happen nevertheless.
In fact, not only are they set to increase again, but they may also be significantly more expensive in 2024: a 7.5-increase in costs per insured person is likely next year.
READ ALSO: Why is Swiss health insurance set to get more expensive?
Electricity prices
Even though they already increased sharply in 2023, electricity costs will go up again in 2024.
The expected increase will be around 12 percent, according to the Association of Swiss Electric Companies.
This means that a typical household of four people will pay 30 cents per kilowatt hour for its electricity, against 27.2 cents this year.
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