Economy to slow further, experts warn

Export industries are beginning to feel the effects of the global economy downturn Keystone

Swiss government experts have cut their economic growth forecast for this year, saying signs of a worldwide economic slowdown had intensified but that Switzerland would escape a marked recession.

Economists at the State Secretariat for Economics (Seco)  now expect growth in 2012 to be just one per cent, down from the 1.4 per cent they predicted in June. Inflation is seen at minus 0.5 per cent this year, compared with an earlier minus 0.4 per cent.

“The international economic slowdown has also reached Switzerland,” the Seco experts said. “However, the group does not foresee a marked recession in Switzerland thanks to the robust domestic economy and the exchange rate floor against the euro.”

To help insulate Switzerland from a flood of safe-haven capital fleeing the eurozone crisis, the Swiss National Bank (SNB) set a cap of SFr1.20 per euro a year ago.

The Seco experts highlighted the fact that that franc had not appreciated any further against the European single currency and had lost ground against other currencies including the US dollar and many Asian currencies.

The Swiss economy, which long seemed able to withstand the turmoil in the neighbouring eurozone, surprisingly contracted in the second quarter.

Weak international situation

The government specialists said the situation was divided between the domestic sector performing relatively well while the export sector was under pressure to adapt. The domestic economy has been able to rely on low interest rates, falling consumer prices and high immigration.

Exports have suffered from the weak international situation, with previously robust markets such as Germany and Asia, including China, falling off.

The European Central Bank’s plan to buy eurozone government bonds has reduced the risk of a further escalation of the crisis, the Seco experts said.

“Nevertheless, it is still too early to state that the euro crisis has been resolved until there is any clear success with the reforms in the crisis countries, leading to greater stability in government finances and improved economic competitiveness,” they added.

“The risk of further losses of confidence and turbulences on the financial markets will not have been eliminated.”

Last week, the SNB also cut its growth forecast to one per cent for this year, and like the Seco citied a eurozone on the brink of recession and slackness in the United States.