Economic forecast for 2002 revised downwards

KOF has revised its forecast for 2002 swissinfo.ch

A leading Swiss research institute has revised downward its forecast of growth for the Swiss economy this year from 1.7 per cent to 1.2 per cent.

The outlook for next year, however, looks brighter.

The Swiss Institute for Business Cycle Research (KOF) in Zurich forecast that growth in 2003 would be 2.1 per cent, slightly higher than the previous figure of 2 per cent it reported last October.

“We think the Swiss economy will take off already in the second quarter. We had a lower level at the end of last year because of the slowdown of the economy in Switzerland and around the world,” the Institute’s Yngve Abrahamsen told swissinfo.

“But we’ll have a nice increase from the second quarter onwards and the mean level will be 1.2 per cent,” he added.

On Wednesday, the State Secretariat for Economic Affairs in Bern forecast that the economy would grow this year by one per cent, the figure that has also been put forward by the Swiss National Bank.

Turn the tide

Abrahamsen commented that KOF’s slightly higher growth prediction was due to the feeling that the economy would turn the tide in the second quarter and not in the second half, as others have been forecasting.

KOF, which is part of the Swiss Federal Institute of Technology in Zurich, said that for the current year, an increase of real private consumer demand of 1.6 per cent was expected.

The growth in real export of goods is set to accelerate “noticeably” this year and next, but should on average only increase by 2.1 per cent in 2002 before reaching 6.5 per cent in 2003. The export of services will see the continuing weakening in tourism exports, the forecast says.

At a news conference in Zurich, KOF said that GDP growth next year of 2.1 per cent would correspond to the growth potential.

It added that viewed as a whole, the Swiss economy would…return “relatively quickly” to the level of potential growth.

“We have a rather low unemployment rate, very low inflation and the growth rate in the last two to three years was quite good,” commented Abrahamsen.

Steady growth

“This year it will be somewhat lower but we think we will have steady growth of 1.5 – 2 per cent in the next two years after this,” he added.

KOF said in its forecast that the cumulative inflation rate in the course of the year would be 1.2 per cent in December this year, well below the two per cent threshold which the Swiss National Bank equates with price stability.

The Institute is predicting that unemployment will increase to 2.1 per cent this year, decreasing to 1.4 per cent next year unless the economic recovery leads to a stronger-than-expected expansion in labour supply.

While many voices have been calling for the central bank to take action against the strong value of the Swiss franc, particularly compared with the euro, KOF does not see this as a problem.

Exporters have complained bitterly that the stong franc is hurting their business.

Franc – not too high

“We don’t think it’s too high at the moment but, of course, we do have some firms which have problems with the current (exchange) rate,” Abramasen told swissinfo.

“We had quite an increase last autumn but that is not going any higher this year. Our prediction is that there will be a small depreciation of the franc against the euro, with a slight increase against the dollar. It shouldn’t cause too many problems for exporters in the next two years,” he commented.

by Robert Brookes