International and National
Driven by vaccination campaigns, which are helping to accelerate service sector activity, the global economic rebound has been impressive. Many economic indicators have reached all-time highs, and the outlook is regularly being revised upward.
Global growth is thus expected to exceed 6% this year—a record high in at least 40 years. In a rather unusual turn of events, developed countries are driving this rebound, while emerging markets have limited access to the most effective vaccines. Nevertheless, some signs suggest that growth may have peaked, particularly in China and the United States, while Europe is expected to report spectacular figures for this summer.
As a sign of the global economy’s robust health, Swiss exports reached an all-time high in June, at 22.4 billion francs. Switzerland demonstrated flexibility by rapidly implementing short-time work, which saved tens of thousands of jobs and preserved purchasing power. A veritable consumption boom is also expected between now and the end of the year. Against this backdrop,the KOF has raised its GDP growth forecast to 4% for this year. Switzerland could be one of the first countries to see its economy return to pre-crisis levels.
The key to the recovery lies in the mix of fiscal and monetary stimulus measures injected into the economy, and particularly in the shift in governments’ fiscal policies. Austerity is a thing of the past. In Europe, funds from the stimulus package are expected to boost growth to 4.1% by 2026. Globally, no less than $14,000 billion—yes, you read that right—has been injected to stimulate the economy.
This favorable environment has propelled stock markets to record highs, further supported by a strong rebound in corporate earnings. Beyond revenue and profitability, plans for the future use of earnings are encouraging. Indeed, analysts anticipate a marked acceleration in capital expenditures, which could herald the start of a new era of productivity growth and help ease inflationary pressures. Furthermore, while core inflation has climbed to 4.5% in the United States—a high not seen since 1991—this figure has not unsettled the markets. The decline in inflation expectations indicates that the consensus believes inflationary pressures are transitory.
In the medium term, however, rising consumption and inflation will prompt central banks to gradually withdraw their support and raise interest rates. In the short term, the preferred scenario is for the global economy to continue reopening in countries with high vaccination rates, accompanied by solid but more subdued growth.
Canton of Neuchâtel
Economic activity in Neuchâtel has also been marked by a strong rebound over the past several months. The canton’s manufacturing output, driven by watch exports, is supporting this growth. Figures published by the Federation of the Swiss Watch Industry (FH) for June 2021 show a 13.4% increase in the value of exports compared to 2019 (2020 is not representative due to the pandemic). These very strong figures were achieved even though the number of watches sold was lower than two years ago in the segment of watches priced under five hundred francs. The upturn is also benefiting the machinery, electronics, and precision instruments industries, although export figures have not yet returned to 2019 levels.
The KOF Business Climate Survey confirms that companies in Neuchâtel generally have a positive view of the situation, reinforcing the sentiment that prevailed over the previous two quarters. New orders are at a high level, and the production capacity utilization rate is similar to what it was before the crisis. It is also worth noting that it has now caught up to the national average.
Over the past quarter, concerns about a shortage of raw materials have emerged. Beyond the threats to supply chains—and thus to economic activity—companies expect their production costs to rise, with no guarantee that they will be able to pass these increases on to their selling prices. This phenomenon is particularly acute in the construction sector.
The cantonal unemployment rate continued to decline in June, briefly falling below the 4% mark before stabilizing at that level in July. It remains slightly above the average recorded in French-speaking Switzerland, but with this downward trend, the canton of Neuchâtel is returning to the situation it was in before the pandemic. In terms of reduced working hours (RWH), the return to normal continues, with both the number of companies utilizing the program and the number of affected workers continuing to decline.
For the coming months, companies that participated in the KOF survey expect their business activity to stabilize, but at a relatively high level. Meanwhile, the in-person economy is benefiting from the gradual reopening of businesses that were still subject to pandemic-related restrictions. It seems increasingly likely that progress in vaccination and the widespread adoption of the COVID certificate will help mitigate the effects of a potential new wave of infections, so let’s remain optimistic!
Marie-Laure Chapatte – Neuchâtel Cantonal Bank
To view interactive economic data: ne.ch