Business investment contracted sharply in 2023, after having performed well over the previous two years. Last year's decline is similar to that of the Covid crisis, but is still much smaller than the fall during the 2008 crisis. It reflects two factors, namely the rise in real interest rates and, above all, reduced business confidence in the economic outlook.
What are the drivers of growth in recent years ?
Swiss growth has slowed markedly in 2023, from 2.7% to just 0.8%. The chart below shows the contributions to total growth from domestic demand (private and public consumption, and investment, red bars), inventories (grey bars) and the trade balance (green bars).
For example, the value of 2.3% for the red bar in 2022 indicates that if only final demand had increased in that year, with no change in inventories or the trade balance, GDP would have risen by 2.3%. We see that last year's slowdown essentially reflects weakness in final demand.
To get a clearer picture, we can break down final demand into its three components, as shown in the chart below. The 1.8 percentage point slowdown in the contribution to growth is shared between public consumption (blue bar), which has continued to grow but at a slower pace (down 1 point between 2022 and 2023), and investment, which has fallen after doing well in 2022 (down 0.8 between the two years, red and yellow bars). The current contraction is similar to that seen in 2020 during the Covid crisis, but remains well below the fall seen in 2009 during the financial crisis.
While the drop between 2022 and the previous year essentially reflects investment in machinery and equipment (red bars), this does not mean that construction activity is more robust, as it shows sustained weakness over time, contracting from 2019 onwards (yellow bars).
What are the causes of the investment weakness ?
The graph below illustrates two of the factors that play a role in investment decisions. It contrasts the contribution of investment to growth (red line) with the real interest rate on loans for investment purposes (yellow line, 5-year maturity), and the confidence indicator calculated monthly by Seco (blue line, annual average). The real interest rate can only be calculated since 2013, as it is based on 5-year inflation expectations, which are not available before then.
The figure shows that the interest rate plays a role, but that it is not the only factor. The rise in the real rate in 2023 was in fact accompanied by a fall in investment, but this was a sustained source of growth until 2018, when the real rate was higher than it is now.
Business confidence in the economic outlook is also an important factor. While businesses were still confident in 2022, their assessment has deteriorated markedly since then. The low level of the confidence indicator is similar to that seen in 2020 (Covid crisis), 2015 (abandonment of the floor exchange rate against the euro), and 2012 (eurozone crisis). The health of Swiss domestic demand will therefore depend on renewed business confidence. While the latest Seco indicator figures show a slight improvement, confidence remains fragile.
