Economic Outlook

USA
Massive job creation in recent years is boosting US personal consumption, This, in turn, is strengthening business confidence. The upswing has therefore become self-sustaining, enabling the US to decouple from the grim economic situation in Asia and Europe. The Fed will initially keep interest rates unchanged, but if economic performance remains robust, a further upward ratcheting of rates can be expected in the second half of the year. a

Eurozone
The eurozone economy is in trouble. A drop in new automobile registrations due to the new WLTP emissions standards, coupled with the disruption of inland water traffic by last year‘s dry summer, had a serious effect on industrial production in the second half of 2018. At the same time, the economic slowdown in China is hitting exports. Nevertheless, a recession is not on the cards. Catch-up effects following last year‘s one-off factors should push industrial production higher.

Germany
Germany has avoided recession by the skin of its teeth. GDP contracted in the third quarter of 2018 and only edged slightly higher in Q4. This uninspiring performance was due partly to special factors (WLTP certification and the dry summer), but it also reflected weak foreign demand, which has hit Germany’s exporters. Slow growth in the Chinese economy is a particularly negative factor.

Switzerland
After powering ahead at full throttle during the first half of 2018, the Swiss economy suddenly ground to a halt. Growth has passed its peak. Economic weakness in the neighbouring eurozone is having a braking effect on Switzerland. Added to that is the uncertainty created by current trade conflicts. In this environment companies tend to postpone investments.  Even so, we see no danger of the economy going into a tailspin. Consumer spending should generate growth, and corporate investment will start to make a positive contribution again despite weaker momentum in the quarters ahead.

Emerging markets
The Chinese economy is mired in a major downturn. This is not visible in the official data, but a mass of alternative indicators show that the economic slowdown is very serious. Hopes are now pinned on the countermeasures taken by the Chinese government. But these will take time to bite, and in any case excessive levels of capital investment mean that government action will be less effective than in the past. Nevertheless, Beijing’s support should at least be enough to stabilise the growth rate. That said, we believe that the biggest risks for the global economy now emanate from China.