Real Estate Outlook – Switzerland, Edition 2H24

The macroeconomic environment in recent years has been characterized by great volatility. The pandemic and the resulting economic slump were followed by inflation, interest rate hikes and the associated fears of recession as well as geopolitical upheaval, which significantly increased uncertainty in global trading markets.

Although the figures on the US labor market published at the beginning of August 2024 caused some uncertainty on the financial markets, the US economy remains stable with annualized growth of 1.4% in the first quarter and 2.8% in the second quarter of 2024. The eurozone economy is growing more slowly, particularly in manufacturing-heavy northern-European countries. Growth in the service-oriented southern economies is more robust. The weakness in the manufacturing sector is particularly evident in Germany, where – after a slight improvement in the first quarter - the gross domestic product fell again by 0.1% in the second quarter of 2024.

The volatility of the global economic situation is also reflected in the mood of Swiss economic players. As Germany is one of Switzerland’s most important trading partners, the weakness of the German industry is affecting the manufacturing sector here too. This is clearly illustrated by the Purchasing Managers Index (PMI), which has been continuously below the growth threshold of 50 points for industry since January 2023. With a range of values of between 43 and 57 points since January 2023, the PMI in the service sector paints a somewhat less gloomy picture than the industry index, but at the same time its volatility expresses increased uncertainty.

Despite the lack of tailwinds from abroad, the Swiss economy recorded slightly above-average growth of 0.5% in the second quarter, following growth of 0.3% in the first quarter (SECO).¹  This is a surprising result given the weakness in the PMI, the lack of growth in Germany and increasing concerns about headwinds from a strong Swiss franc. However, a closer look reveals that the positive result was primarily driven by pharmaceutical exports, which are not very sensitive to economic developments, while growth momentum is otherwise rather subdued.
Growth in the labor market is not in line with growth in the Swiss economy. Following the significant employment growth of 77,200 full-time equivalents (FTEs) in 2023, employment growth in the first half of 2024 was relatively moderate at 26,900 FTEs. Similarly, the unemployment rate has risen in the year to date from 2.2% in January to 2.5% in August (FSO).

¹ Non-adjusted for sport events, the Swiss economy grew by 0,5% in the first quarter and 0,7% in the second quarter.