Another Swiss economic upturn expected around mid-2001

Aldo Visani believes the Swiss economy will pick up again later in the year. Visani Aldo / Banca del Gottardo

The Swiss economy's growth rate is set to pick up again by mid-year, but the franc is likely to lose ground, according to Banca del Gottardo's senior economist, Aldo Visani.

Economic growth in Switzerland began to slow in the second half of last year in line with global developments. However, the slowdown should be short-lived, coming to an end by mid-2001, Visani told swissinfo.

Last year was a good one for the Swiss economy: Gross Domestic Product (GDP) growth reached three per cent, unemployment fell below two per cent, and on average inflation remained below two per cent.

The expansion, which began half-way through 1999, reached its peak during the first quarter of 2000 and then tapered off gradually for the rest of the year.
Visani said the trend was likely to continue until mid-2001.

“At that point lower interest rates and lower oil prices should support the real economy,” said Visani.

The pick-up in growth remains dependent on the outlook for lower interest rates in Europe. Despite a decision to lower rates in the United States, the European Central Bank (ECB) has failed to take similar moves.

However, there are expectations in the financial community that by mid-year the ECB and Swiss National Bank (SNB) will have to look to cutting interest rates in an effort to boost economic growth.

The current slowdown in Switzerland’s economic expansion is not necessarily something to worry about, said Visani. He stressed that the slowdown is welcome as it reduces inflationary pressures in the labour market which, in turn, makes room for the SNB to cut interest rates.

The slowdown also comes as something of a rude reminder to Europe that its economic growth cannot be dissociated from international – and particularly – US trends.

Not all areas of the Swiss economy will be affected to the same extent, according to Visani,

“Private consumption should continue to do well and the construction sector is probably the most promising,” he explained. “The export sector, though, is the most exposed as investment plans have been postponed everywhere.”

Last year the Swiss market was one of the few European bourses to record a positive performance with the Swiss Market Index up 12 per cent. This comparative strength is, however, set to disappear over 2001.

Banca del Gottardo forecasts a sideways movement for the Swiss bourse over the next two to three months. By mid-year, though, the upwards trend in share prices will resume as lower interest rates in the US, and probably Europe, influence the markets. However, any gains in Swiss equities are likely to be at a slower rate than the rest of Europe.

“At a sectoral level pharmaceuticals and food stocks should lose their leadership to chemicals, construction, technology, media and communication stocks,” said Visani. “The consequence of this sectoral shift of emphasis is that Swiss stocks should underperform other markets.”

The Swiss franc has recently been doing better against the US dollar, following moves by the US Federal Reserve to reduce interest rates. But the upward push in the franc will be short-lived, according to Banca del Gottardo’s forecasts.

“If our expectation of a recovery in the world economy starting by mid-year is right then the Swiss franc should lose ground against all other currencies,” explained Visani. “There is only one exception – the Japanese yen.”

While not necessarily good news for tourists planning to visit the US, the reduction in the franc’s value will help Swiss exporters sell more goods for less in dollar-terms.

by Tom O’Brien