Domestic slowdown expected until mid-2009

The Swiss government expects the economy to continue moving downward until mid-2009 Keystone

The Swiss government on Monday said that economic growth would slow amid a weak financial sector, high commodity prices and cool global markets.

Gross domestic product (GDP) for Switzerland was expected to grow by 1.9 per cent this year and by 1.3 per cent in 2009, according to the State Secretariat for Economic Affairs (Seco).

The economy grew by 3.1 per cent in 2007.

“The cooling of the economy, which started at the beginning of the year will continue,” Seco said on Monday. “The weaker global economy and the worsened conditions of financial markets is likely to continue to impact the economy in 2009.”

A weaker economy would not be undesirable, as it would reduce inflationary pressure, Seco said.

Slow mend

The slow mending of the United States economy and faint interest in Swiss foreign trade were responsible for the slower-than-expected growth, Seco’s chief economist, Aymo Brunetti, said.

He added that evidence of the effect of the US financial crisis was now clearer in Switzerland.

Growth slowed sharply in the Swiss economy in the first quarter of 2008. Real GDP grew at a rate of only 1.3 per cent from January to March, compared with growth rates of three to four per cent in 2007.

In March, Seco had forecast growth of 1.9 per cent for 2008 and 1.5 per cent for 2009.

Seco’s downgrade on Monday was followed by similar forecast by the KOF Swiss Economic Institute at the Federal Institute of Technology in Zurich, which now projects the Swiss economy to grow 2.0 per cent this year and 1.8 per cent in 2009.

It said to reach to 2.5 per cent by the end of 2008. March’s prognosis had been 1.7 per cent.

On Friday, the Swiss National Bank (SNB) kept its key interest rate unchanged at 2.75 per cent despite inflation rising to a 15-year high of 2.9 per cent in May.

The SNB predicted the inflation rate would settle below the two per cent level in 2009 and that the unemployment rate, expected to stand at 2.5 per cent by the end of the year, would rise to 2.6 per cent by the end of 2008.

International markets

Seco called the development of the international financial markets a major risk factor and predicted the US economy to remain slow until the end of 2009.

It has predicted the slowdown in the domestic economy to continue until mid-2009.

Apart from the economic woes in the US, which it said were difficult to estimate, Seco cited effect of rising commodity prices purchasing power in private households, calling them a “massive burden”.

In a statement, it deemed the effect of the US economy comparatively moderate, but said that flagging real estate markets Britain and Spain could affect private consumption.

It also said that “prolonged insecurity” within Switzerland’s comparatively large financial services sector could affect the overall economy, and said a declining trend could be expected.

swissinfo with agencies

Projections

Seco
1.9% (2008)
1.3% (2009)
(June 23, 2008)

KOF
2.0% (2008)
1.8% (2009)
(June 23, 2008)

Swiss National Bank
1.5-2.0% (2008)
— (2009)
(June 19, 2008)

BAK Basel Economics
2.0% (2008)
1.6% (2009)
(June 13, 2008)

economiesuisse
1.5-1.7% (2008)
1.0% (2009)
(June 12, 2008)

UBS Wealth Management
2.3% (2008)
1.4% (2009)
(March 30, 2008)