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Sept. 2 (Bloomberg) -- The Swiss economy lost pace in the second quarter as private consumption couldn’t make up for slowing exports, replicating stagnation in the surrounding euro area.
Swiss gross domestic product was unchanged in the three months through June from the previous quarter, when it expanded 0.5 percent, the State Secretariat for Economic Affairs in Bern said in a statement today. That’s the weakest quarterly reading in two years and compares with a median estimate of 0.5 percent growth in a Bloomberg News survey of 16 economists.
The Swiss National Bank’s three-year-old cap on the franc has helped the economy outperform that of the euro area in nine of the last 12 quarters. The limit was imposed in September 2011 to ward off deflation and a recession after investors anxious about the sovereign debt crisis pushed the franc nearly to parity with the euro.
“The global economy isn’t developing as we’d expected,” said David Marmet, an economist at Zuercher Kantonalbank. “We think the weakness will last into 2015. The pickup will come, but not as strongly as we’d thought.”
Domestic demand, due in part to high immigration, and expanding trade with Asia has in the past helped the Swiss economy compensate for anemic growth in the euro area, its biggest destination for exports.
The economy of neighboring Germany contracted, while France stagnated and Italy succumbed to its third recession since 2008. Russia sanctions risk depressing the outlook even further.
The SNB currently forecasts growth of 2 percent for this year. Considering a worsening of the economic environment due to geopolitical conflicts, the cap remains “key,” SNB President Thomas Jordan said in Lugano late yesterday, echoing his own comments in an Aug. 31 NZZ am Sonntag interview that the SNB was willing to defend the minimum exchange rate and to take measures to supplement it, if needed.
The central bank’s next policy review is on Sept. 18, when it will issue updated growth and inflation projections.
Demand for the franc increased last week after European Central Bank President Mario Draghi hinted he might be moving closer to quantitative easing. The conflicts between Ukraine and Russia, as well as in the Middle East, have also boosted demand for the Swiss currency.
According to Bloomberg’s monthly survey of economists, published before Draghi’s remarks on Aug. 22, the SNB was seen maintaining its currency cap for at least another two years, amid the weak economic revival in the euro area.
Swiss exports to Russia amounted to 1.3 billion francs ($1.4 billion) in the first half of 2014, just 2.6 percent of its euro-area exports and less than the value of goods sold to the United Arab Emirates, Singapore and Canada, according to customs office data.
As a neutral country, the Swiss have refrained from imposing direct sanctions on Russia, and companies aren’t directly affected by Russia’s ban on European union foodstuffs. Even so, Switzerland has taken measures to prevent the circumvention of international sanctions, including banning banks from taking on new business with certain individuals and forbidding exports of weaponry and goods for the oil and gas industry.
The Swiss government said last week it wasn’t seeking to promote additional Swiss exports to Russia.
“Given saturation tendencies in private consumption and construction, a return of stimulus from foreign trade is important for the further economic development” in Switzerland, said Felix Brill, senior economist at Wellershoff & Partners Ltd. in Zurich. Considering “disappointing recent data from Europe,” Brill said he wasn’t confident that exports would increase. “Accordingly, one must fear that the second half of the year will be weaker than the first.”
--With assistance from Patrick Winters in Zurich and Joel Rinneby in Stockholm.
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