2015 was marked by the discontinuation of the minimum exchange rate of the Swiss franc against the euro, the subsequent dramatic appreciation of the Swiss franc and the resulting effects on the real economy. Given recent developments it can be assumed that 2016 will, in contrast, be characterised by a cautious economic recovery and a slight acceleration of growth.
2015 – The year the minimum euro exchange rate was abolished
On 15th January 2015, the Swiss National Bank (SNB) announced to the world that it had decided to discontinue the minimum exchange rate of CHF 1.20 against the euro, a ceiling that had been in force for around three and a half years. After this decision was announced, the exchange rate of the euro fell briefly below 0.85 Swiss francs, then slightly recovered over the course of the year and at the end of 2015 finished at close to 1.09 Swiss francs. The development of the Swiss economy had slowed down significantly as a direct result of the marked appreciation in the Swiss franc. This dramatic appreciation had a primarily negative impact on foreign trade. A decline in exports and falling export prices burdened the real economy. After a certain time lag, the momentum in investments also slowed down. In contrast, private consumption remained robust and was a key driver in the Swiss economy throughout 2015. A recession could therefore be averted and the Swiss economy even recorded moderate growth. Overall, results for the first quarter estimates indicate a provisional rate of growth of 0.9% in the gross national product for 2015.
Global economic conditions
The global economy only developed moderately in 2015 and global economic growth was weak overall. The year was also characterised by a worldwide expansionary monetary policy and low energy and raw material prices. The expectations for 2016 will depend on these developments, although current forecasts show a slight increase in growth. While there has been a moderate acceleration of growth in developed economies such as the United States and the euro area, the growth in important emerging countries is expected to weaken. Particular focus is on the developments in China. The lasting and profound structural changes required to shift from growth based on export and investment towards a more consumer-led growth, is seen as a major challenge in view of the, to a large extent, non-existent social insurance system and is reflected in the country’s downturn in economic growth.
Switzerland in 2016
These global developments still represent a degree of uncertainty for Switzerland as a small, open economy. However, the anticipated economic recovery of the industrialised countries, particularly in the euro area, will have a greater impact than the slowdown in the growth of the emerging countries due to Switzerland’s trade structure.
In view of slight easing in the exchange rate situation since the middle of 2015 and in light of the global economic conditions, the Federal Government’s group of experts for economic forecasts is working on the basis that the Swiss economy will continue to recover in 2016, albeit only to a rather subdued degree. With an overall projected growth rate of 1.5%, the momentum is still clearly below the long-term average. There will also still be risks to this moderate growth. For example, in addition to exchange rate development there is primarily the development of the global economy, as well as continued or even increased reluctance to invest and a possible decline in the growth of private consumption, as a result of rising unemployment.
Domestic demand is also expected to continue to be the main pillar of the economy in the current year and a positive contribution to growth is also to be expected in foreign trade in the event of economic recovery in the industrialised countries.
Outlook for Basel-Stadt
2015 was dominated by big challenges and a noticeable change in the economic environment for Basel-Stadt and its business as well. The area also suffered from a significant economic slowdown in response to the discontinuation of the minimum exchange rate mechanism for the euro. Nevertheless, the respective impact on the local economy was less damaging than the Swiss average and, compared to Switzerland as a whole, it saw significantly more positive growth. According to the estimates of BAK Basel Economics, annual growth for 2015 was 1.8%. This was primarily due to the chemical-pharmaceutical industry that is firmly established in the region, and whose demand was barely affected by the abolition of the exchange rate ceiling. Tourism in Basel expanded positively throughout the year, too. The number of overnight stays from January to December 2015 amounted to a total of 1.2 million - more than ever before on record. This equates to approximately 39,000 more overnight stays than in 2014.
The Basel-Stadt economy is expected to recover slightly in 2016 with a growth forecast of 2.0%. The chemical and pharmaceutical industry continues to be the driver of growth, and according to BAK Basel Economics, it will enjoy an above-average growth of 3.0% (2015: 2.3%). The reasons for this growth include the fact that in global demand trends (aging of the world population and rising prosperity), the sector is relatively unaffected by cyclical fluctuations.
Analysis of the labour market shows that, according to forecasts, the number of employees in Basel-Stadt will increase by 0.9% in 2016. As a second indicator, growth in employment will be lower for the current year than in 2015, as a result of the economic slowdown in the last year.
Sources: the IMF and the OECD for the world economy. For the Swiss forecast “SECO Economic Forecasts Winter 2015/2016” as well as “The Gross Domestic Product in the 4th Quarter of 2015”, and for the cantonal forecast BAK Basel Economics (21/01/2016), as well as for tourism: Statistical Office of the Canton of Basel-Stadt, statistical release 4th February 2016.
Specialist Department Principles of Economics
Dr. Anna-Marleen Plume
Head of Specialist Department Principles of Economics
Phone: +41 61 267 65 12