Swiss economy remains in good shape, but outlook dims according to KOF

Regarding the evolution of business over the next six months, companies are significantly less optimistic than before. Headwinds for the Swiss economy are likely to intensify in the near future.

KOF’s trading situation for Swiss companies slowed slightly in July but nevertheless remained better than at the beginning of the year and we have to go back to July 2011 to see a more favorable trading situation than the current one. Regarding the evolution of business over the next six months, however, companies are significantly less optimistic than before. Headwinds for the Swiss economy are likely to intensify in the near future.

The business situation in the hospitality sector is improving despite a prevailing negative trend

In most economic sectors surveyed, the business situation cooled in July. This phenomenon is particularly noticeable in retail trade, where the business situation indicator is now clearly on the decline after more than a year of rise. The decline is less pronounced in financial and insurance services, wholesale trade and manufacturing. Although the Swiss franc has recently appreciated against the euro, companies in the manufacturing industry do not currently feel a strong loss of competitiveness in the EU market. The business situation shows very slight signs of wear and tear on other service providers, on projects and construction. Contrary to a general weakening trend, the business situation is clearly improving in the hotel and catering industry.

No worsening shortage of intermediate products

The problem of shortages of materials and intermediate products has not worsened since the spring, despite the war in Ukraine and anti-pandemic measures in parts of Asia. It is true that many companies continue to complain about the lack of intermediate products, but the worst seems to be over. Companies in the manufacturing industry have also been able to slightly fill their inventories of intermediate products, and wholesalers are less likely than before to expect an increase in lead times. In addition, companies anticipate an increase in demand for their own products less often than before, which should also contribute to this slight easing.

The impetus for price increases slows

The price increase is still very high, but it is no longer increasing. Trends vary by industry. Hotels and restaurants and other service providers, for example, increasingly expect price increases, while in manufacturing and wholesale, price forecasts are no longer as strong as they once were. This heterogeneity may further indicate that the pace of price increases will no longer increase as strongly in general.

Gross wages should not keep up with inflation in the short term, says salary survey

In July, the KOF included in its usual business trend surveys questions about the expectations of companies in relation to the evolution of wages in the company itself and the evolution of inflation (based on the consumer price index). In the future, these questions will be asked again every three months. Current results should still be considered experimental and therefore provisional. They indicate that, according to the company’s expectations, gross wages will increase on average by just over 2% within a year. Survey participants therefore assume that gross salary increases will not follow inflation during this period.

The results of KOF’s Business Trends Surveys for July 2022 incorporate responses from nearly 4,500 companies in the manufacturing, construction and major service sectors. This corresponds to a response rate of approximately 56%.

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