Growth sectors remain resilient amidst economic uncertainty

Interview with Valérie Lemaigre, Chief Economist at BCGE, published in the Journal des arts et métiers – January 2023

ECONOMIC OUTLOOK – For 2023, Valérie Lemaigre, Chief Economist at BCGE, predicts inflation will gradually decrease, keeping pace with the price trends of its main contributors – imported products and other manufactured goods. The chemical, pharmaceutical and watchmaking industries are experiencing growth that is benefiting everyone.


Growth sectors remain resilient amidst economic uncertainty


What are the overall growth prospects in 2023 for SMEs in French-speaking Switzerland and Geneva ?

Valérie Lemaigre: SMEs are more exposed to changes in financial conditions – here we're talking about rising interest rates for credit lines and rising production costs for many businesses. On the other hand, the majority of service-oriented SMEs will most likely face other pressures; wages will be their primary concern, although they no longer appear to be increasing. It all depends on how an SME is positioned within its sector and on any market opportunities. Geneva and French-speaking Switzerland rely on growth sectors – such as the chemical, pharmaceutical and watchmaking industries – for healthy exports and business services. The resilience of these industries is key; even SMEs that subcontract for larger companies benefit from this resilience.


How does the difficult relationship with the EU affect the ability of SMEs to compete in the European market, and is this impact visible or predictable?

Uncertainty most definitely hampers access to research and innovation, which are essential to Swiss companies if they are going to cope with cost constraints and the strength of the franc. For the time being, SMEs are benefiting from a more leisurely increase in costs than their European competitors. But investment in the future, linked to R&D and innovation, remains key to their competitive advantage.



How is the industrial sector in Geneva doing?

The pharmaceutical and life sciences industry – Geneva’s main industrial sector – is doing well. Watchmaking, the second largest industrial sector, is also still doing well and will most likely be doing even better once Asian (particularly Chinese) tourists return.


How will SMEs be able to sustain growth in Switzerland when consumer sentiment, according to your study, remains low? Is the legal (especially fiscal) framework too rigid?

The fiscal framework is favourable, relatively speaking, and sentiment is not adversely impacting consumer purchase behaviour. At least for the time being, this phenomenon is not inhibiting consumption because the job market remains tight.


How is the increase in energy prices currently impacting investment by SMEs?

If a company cannot pass on part of the cost increase to the consumer through the purchase price, the company may need to reduce investment. SMEs in innovative niches have greater price flexibility and can increase their prices without limiting their investments.


How do you expect inflation to evolve over the coming months?

I believe we will see inflation slow little by little, in step with the falling prices of its main contributors – energy, imported products, and other manufactured products. The remaining contributors to inflation are under control and we should see their prices stabilise; in turn, the increase in inflation should stay between 1% and 2%, an increase that will be manageable for both businesses and consumers. JAM




2023: Further rate hikes on their way, but order books full and vacancy rates stable

Although today's economy is marred by uncertainty, most indicators point to a promising scenario for the Swiss economy and the world economy as a whole. 2022 will be remembered as the year key interest rates were increased in an attempt to contain inflation. In Geneva, and Switzerland more broadly, inflation is expected to reach 1.0% in 2023, indicating that it may have already peaked. Businesses are the driving force behind the economic momentum, with expected GDP growth at 1.3% for Geneva (and Switzerland), despite low consumer sentiment.


Falling inflation

The latest effects of the Covid pandemic and the conflict in Ukraine have led to supply problems and a shortage of energy, causing inflation to rise rapidly. Central bankers on both sides of the Atlantic have drawn on their arsenal of measures, notably higher key interest rates, in a bid to tackle inflation. While the effort seems to be paying off in Switzerland and the US, where the peak of inflation seems to have passed, the situation in the eurozone remains more ambiguous. Further rate hikes in 2023 are likely, although a gradual tapering off can be expected over the coming year. In Switzerland, the moderate rate of inflation is due to the absence of generalised wage indexation, ensuring that the economy is not caught up in a harmful wage-price spiral.


Consumer sentiment

While the current climate of uncertainty depresses consumer sentiment, economic indicators point towards a generally healthy economy, mainly driven by the corporate sector. Order books are full and companies are continuing their productive investments. Also, most of their exports go to the dollar zone, preserving their competitive advantage thanks to the strengthening of the dollar against other currencies, including the Swiss franc. As for exports to the eurozone, although the appreciation of the Swiss currency against the euro seems to be a handicap, it also offers protection against imported inflation, mainly due to energy prices. Therefore, it should not affect companies with sufficient product margins.


The real estate market

While higher interest rates seem to have a positive effect in the fight against inflation, their effect on the housing market is only marginal for the time being. Since most loans are fixed-rate mortgages, their gradual renewal does not cause any alarm in the housing market. The various vacancy rates remain stable, backed by a demographic trend that is still favourable and a price trend that does not yet reflect the impact of rising interest rates. Only construction companies are under pressure, given they cannot easily compensate for the increase in material costs in their quotes for construction costs. BCGE


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