Swiss GDP shrinks in last quarter

Companies and consumers are starting to feel the crunch Keystone

Hurt by lower engineering and chemical exports as well as companies’ reduced spending, Switzerland’s gross domestic product (GDP) shrunk by 0.1 per cent in the second quarter – after expanding in the previous two quarters.

Exports of goods and services including tourism declined 0.8 per cent from the previous quarter, the State Secretariat for Economic Affairs (Seco) reported on Tuesday. Exports of services fell 0.9 per cent, and goods excluding foreign trade with precious metals, jewellery, art and antiques dropped 0.7 per cent. Positive growth came from the export of precision instruments, watches and vehicles.

Slumps in the euro zone and slowing growth in worldwide export markets are driving down demand and hurting financial services. In addition, the appreciation of the Swiss franc forces manufacturers of chemical, engineering and electronics products to lower prices, which further erodes exports.

Economists at think tank BAK Basel Economics had forecast a stagnation in the second quarter. They will, however, reduce their estimates for the rest of the year because the state secretariat also revised GDP figures for the previous three quarters, changing economists’ basis used to assess the situation.

“BAK will lower its GDP estimates for 2012, not so much because of second-quarter figures, but because the secretariat’s revision has eroded part of the positive image,” BAK economist Alexis Körber told swissinfo. “As a result of the revision, the negative effects of the appreciation of the Swiss franc appear markedly stronger now, affecting also our full-year outlook.”

The country suffered its last recession – defined as negative growth rates for two consecutive quarters – at the end of 2008. Switzerland’s economy is losing some of its shine as the world economic environment continues to weaken, and as Germany, Switzerland’s largest trading partner, is starting to feel the negative effects, Körber said.

Swiss investments stagnated in the second quarter as a 1.0 per cent increase in construction made up for a 0.9 per cent decline for equipment in the machinery and aircraft industries.

Government stimulus

The economy may get new impetus from construction, private consumption and public spending, which are still expanding in Switzerland, Koerber said. He warned, however, that one should not overestimate the government stimulus.

Private consumption from households and non-profit institutions increased 0.3 per cent in the second quarter, lifted by spending on housing, water, electricity, fuel, healthcare and transport. Government consumption and spending on social security also expanded at 1.0 per cent.

At the end of August, the government said that according to first estimates the Swiss GDP increased by 1.9 per cent to SFr587.8 billion ($616.8 billion) in 2011, lifted by higher demand for Swiss watches and the exports of pharmaceuticals and chemicals. At current prices, the GDP increase was 2.2%.

Hurt by the strength of the Swiss franc, exports increased by 3.8% to SFr300.4 billion last year – slower than the 7.8% in the previous year. Imports rose 4.2% to SFr237.3 billion, the statistics office said.