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Switzerland: Economic growth will likely push inflation slowly higher over time - Wells Fargo

According to analysts from Wells Fargo, today’s positive GDP print and solid domestic demand will likely support a gradual acceleration in prices in Switzerland. 

Key Quotes: 

“Growth in the Swiss economy strengthened in Q3, up 2.5 percent on an annualized basis. While GDP growth in Switzerland has been more muted over the past few quarters, today’s print affirms broad-based growth in both domestic and external demand. Amid solid economic growth, Switzerland has faced low inflation over the past several years, pushing the Swiss National Bank (SNB) to move its policy rate into negative territory and actively manage its exchange rate to avoid additional deflationary pressures from a strengthening Swiss franc.”

“Today’s GDP print points to positive economic growth that will likely push inflation slowly higher over time and allow the SNB to gradually reverse its accommodative stance. Higher future interest rates could weigh on leveraged Swiss households by increasing debt-servicing costs, but, in the near term, inflation still has room for significant improvement before the SNB will likely move to raise rates.”

“Solid economic growth in Switzerland in Q3 has likely put the economy on track to tackle the challenges of lackluster inflation and an upward trend in household debt seen over the past few years. While the SNB will likely need to see significant improvement in inflation before beginning to hike rates, in our view CPI inflation will likely trend slowly higher.”

“Slowly increasing inflation could exert upward pressure on wage growth, potentially counteracting higher debt-service costs as the SNB eventually begins to raise rates. In the near term, the consensus expects the broad-based strength in the Swiss economy to continue in the coming quarters.”

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