Despite it being the start of the month, the economic calendar this week for Switzerland is pretty light. The next important data release is unemployment figures, scheduled for before market open at 07:45 CET (1:45 EST). They come along with foreign currency reserves, but the market will most certainly be paying most attention to the employment figure.
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Switzerland has a somewhat unique employment situation. This has implications about how the data is interpreted. The impact of the data is also different depending on the market, with otherwise tiny moves in the employment numbers having an outsized effect on the market reaction.
What We are Looking For
The consensus among surveyed economists is for the unemployment rate in Switzerland to improve slightly. They predict a figure to 2.3% from 2.4% in the prior month. Despite its unusually low unemployment rate, this would be the lowest since just before the last major world recession.
The rate peaked in January as it has a habit of doing. Since then it has retraced to where it was for most of last year. If expectations are met, then this would move the first data of summer below the prior year. This is a pattern Switzerland has had for the last three years.
What About the SNB?
While the SNB is notorious for its interventions to protect the currency and the financial sector of the country (Switzerland is one of the most foreign exposed countries in Europe), the central bank largely ignores employment numbers.
Even though we wouldn’t expect a change in monetary policy from a variation in the employment number, it still has inflationary implications. While determining the structural rate for Switzerland is difficult, we can see some correlations with the CPI figure that has been on the rise since January.
And the Current Situation?
Switzerland is stuck in the same pattern as its neighbors and largest trade partners. While there has been some effort among Swiss exporters to shift towards the US market, Germany remains the country’s largest trade partner.
Like with the rest of Europe, Swiss inflation and economy remain anemic while the employment rate continues to drop. While some might imply that this is because job seekers are giving up due to the environment, this is not reflected in the participation rate. This rate remains steady even as the unemployment rate declines.
Last week we saw Swiss Q1 GDP beat expectations and double the growth rate of the prior quarter. The interesting and relevant part is that it was due to increased household spending. This is despite maintaining a strong trade balance during the same period.
While the trade and employment situation is auspicious for increased inflation going forward, it’s not yet a foregone conclusion. How the SNB will react to higher inflation in a period of global uncertainty that is keeping the Franc strong is still a question that remains far off for now.
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