Head of Macro Analysis
Summary: Based on our leading indicator, we expect that Swiss foreign trade will continue to deteriorate deep into 2020.
In this edition, we have news from a small export-oriented economy, Switzerland. We have plotted the Swiss Manufacturing PMI abroad (also known as export-weighted PMI) and Swiss exports. The Swiss Manufacturing PMI abroad is usually considered as a leading indicator of the manufacturing sector. In the chart below, we find that the best correlation (R^0.80) is when it leads Swiss exports by 9 months.
Our leading indicator indicates that Swiss foreign trade is doomed to deteriorate further deep into 2020. The Swiss economy avoided GDP contraction in Q2 this year – GDP have grown 0.2% YoY – but risks to growth remain elevated in coming months. The economy is feeling the pinch from the sharp downturn in the German manufacturing sector (Germany is Switzerland’s biggest export market) and the stronger CHF. Both headwinds are likely to weight negatively on Switzerland’s economic activity in the medium term, which increases significantly the risk of recession.