Switzerland's Economy Grows Less Than Expected on Weak Exports


 Bloomberg

(Bloomberg) -- Swiss economic momentum fell short of expectations in the final three months of the year, due to a fall in investment and as exports recorded their weakest quarterly result in more than a year.

Gross domestic product expanded 0.1 percent in the fourth quarter, after a revised 0.1 percent increase in the third, Switzerland’s State Secretariat for International Economic Affairs said on Thursday. Economists surveyed by Bloomberg had expected a growth rate of 0.4 percent.

Switzerland’s export-oriented economy has faced headwinds due to the strength of the franc, which central bank policy makers have repeatedly called “significantly overvalued.” Better growth in the neighboring euro area may help Switzerland, where the manufacturing, retail and tourism sectors have all been negatively affected by the currency.

“Private and government consumption has had a positive impact, while investment in construction and equipment has fallen slightly,” the SECO said in a statement. “The trade balance has also curbed GDP growth.”

Swiss growth halved in 2015 after the franc shot up against the euro following the Swiss National Bank’s decision to scrap its currency cap. The economy expanded 1.3 percent in 2016, the SECO said, just short of its most recent forecast for a rise of 1.5 percent.

In the fourth quarter, consumption of private households grew 0.9 percent, thanks to spending on health care as well as housing and energy, while government demand rose moderately. Yet investment in equipment fell 0.7 percent and exports of goods declined 2.5 percent, the SECO said.

Euro-Area Boost

The euro area may be in better shape than it’s been for years with economic confidence and long-anemic inflation improving and unemployment -- though still high -- beginning to decline. That’s good news for Switzerland, since the 19-country bloc is its top destination for exports.

Barometers of Switzerland’s economic prospects are upbeat, with a manufacturing strengthening and the KOF indicator signaling above average growth rates.

Still, political and economic risks have led companies to put off local investments, and a survey conducted late last year found a larger proportion of firms were weighing cutting jobs in Switzerland and fewer expect to step up investments.

The SECO expects momentum to pick up to 1.8 percent this year, with a zero rate of inflation. It will provide a new set of forecasts on March 21, just five days after the SNB publishes its own predictions at its quarterly policy assessment.

Strong Franc

The SNB seeks to curb the franc’s strength via a deposit rate of minus 0.75 percent plus a pledge to intervene in markets. Figures for sight deposits suggest it has been active in markets of late, and economists expect it to stick with this stance.

The franc appreciated 1.8 percent versus the euro in the fourth quarter. With investors on edge about an array of risks such as the Trump administration’s policies, Brexit and elections in France, the haven currency has risen roughly 0.7 percent this year, potentially putting a damper on the expansion.

--With assistance from Joshua Robinson

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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