Data point to accelerating economy

Economic activity in Switzerland is accelerating Keystone

Growth in the Swiss industrial sector is forging ahead, with data released on Monday beating expectations and pointing to a surge of economic expansion.

The Swiss purchasing managers’ index has hit its highest level since May 2000, climbing to 65.2 points in March from 60 points in February.

It follows other signs that the Swiss economic recovery is firmly rooted and could pick up pace.

The Swiss Business Institute for Business Cycle Research (KOF) last week reported that its leading indicator had risen to its highest point since June 2000.

The Swiss Association for Materials Management and Purchasing (SVME) and Credit Suisse, which compile the index, commented that the economic upswing had become well established and offered a taste of greater business momentum in industry over the coming months.

They noted that the index had remained above the 50-point mark for 13 successive months, an indication that economic activity in the industrial sector was picking up.

Economists polled by Reuters had forecast an index reading of 58-61.4 points with an average value of 11 surveyed of 60 points.

Strong showing

They said the strong showing in manufacturing coupled with a weaker franc increased the likelihood that the Swiss National Bank (SNB) would raise interest rates by more than the expected 25 basis points later in the year.

The bank tightened borrowing costs in December and March, with its key rate – the London Interbank Offered Rate (Libor) – targeted at 1.25 per cent.

“Today’s stronger outcome may also serve to heighten speculation of a more aggressive 50 basis point move rather than the 25 basis point increments seen since the current gradual tightening cycle started in June 2004,” said Rajel Khambhaita at Informal Global Markets.

“We see another 25 basis point hike in June with a 50 basis point hike in September or December not completely off the radar screen,” she added.

Future activity could accelerate further still, with the March sub-index reading for the backlog of orders surging to a record high.

“It looks very strong,” said economist Henrik Gullberg at corporate and investment bank Calyon. “Chances of the SNB moving by 50 basis points in June are definitely increasing.”

swissinfo with agencies

In brief

The Swiss purchasing managers’ index has existed since 1995 and was created jointly by the Swiss Association for Materials Management and Purchasing (SVME) and Credit Suisse, Switzerland’s second-largest bank.

Each month, more than 200 purchasing managers at Swiss industrial companies are asked about their performance compared with the prior month.

The topics of the questionnaire include output, backlog of orders, quantity of purchases, purchase prices, suppliers’ delivery times, stocks of purchases, stocks of finished goods and employment.

The index has a lead of around six months on the real economy.