KOF economists predict a recovery for the Swiss economy starting in the second half of this year. They forecast a 1.2% increase in sport-adjusted gross domestic product (GDP) for 2024

and 1.8% for 2025, according to a statement on Monday by the think tank associated with the federal technology institute ETH Zurich.

The anticipated recovery is largely due to improvements in Europe. The latest KOF forecast indicates better economic outlooks for Germany, France, and Italy, driven by increased consumer spending and higher investment.

Improved Prospects for Industry

Recent below-average growth in these European countries had slowed the export-driven sector of the Swiss economy. However, the forecast predicts an uptick in export momentum. Exports of goods and services (excluding valuables) are expected to grow by 2.9% in 2024 and 2.7% in 2025. Consequently, value added in the manufacturing sector should see an increase after recent weak quarters.

Additional Benefits from Lower Inflation

The KOF now expects inflation to be 1.3% in 2024 and 1.0% in 2025, which should lead to real wage growth and offset the real wage losses of the past two years. While the labor market remains robust, it is not as strong as it has been over the last three years.

According to the think tank, the changing inflation rates could allow the Swiss National Bank (SNB) to implement further interest rate cuts. The SNB is expected to reduce the key interest rate to 1.25% next Thursday and to 1% in March 2025, which would also support the economy.

Uncertainties Ahead

The institute acknowledges several uncertainties. Unexpectedly strong second-round effects of persistently high inflation in the eurozone and the US could cloud the optimistic outlook. Conversely, a sharp decline in inflation in these regions could boost purchasing power and private consumption. Additionally, the wars in Ukraine and the Middle East remain factors of uncertainty.

Unique Swiss GDP Forecast

The forecast for Swiss GDP is somewhat unique due to major sporting events such as the Olympic Games and the European Football Championship (Euro 2024). The forecasts are 1.6% for 2024 and 1.4% for 2025, but these figures are influenced by licensing payments to international sports federations based in Switzerland, which do not provide insight into the overall GDP and are therefore excluded from the calculation. Photo by Baikonur, Wikimedia commons.