UBS consumption indicator posts a modest rise but Swiss private consumption remains flat

Swiss private consumption remains under pressure, as shown by the monthly UBS consumption indicator. While the index rose modestly in October, from 0.67 to 0.87, it remains below its long-term average of 1.5, indicating a modest increase in private consumption year-on- year.

The UBS consumption indicator is calculated based on five sub-indicators: new car registrations, business activity in the retail sector, the number of hotel overnight stays by Swiss nationals in Switzerland, credit card sales generated via UBS at domestic points of sale, and the new consumer sentiment index of SECO, the State Secretariat for Economic Affairs. Rising new car registrations and improving consumer sentiment stabilized the consumption indicator in October, despite fewer hotel stays by Swiss nationals and declining retail sales.

Despite brightening economic prospects for Switzerland, UBS economists expect private consumption to weaken in the coming months. In particular, the expected rise in unemployment and the associated job uncertainty are likely to dampen consumer behavior. UBS thinks a recovery in private consumption is unlikely before the middle of next year.

UBS forecasts Swiss GDP growth of 1.7% in 2010 and 2.1% in 2011. Although private consumption will probably make only a modest contribution next year, UBS economists expect it to contribute to economic growth again in 2011.

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