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Economic growth expected for rest of year

The Swiss engineering industry is expected to continue to grow until the end of the year

(Keystone)

The Swiss economy will continue to grow strongly until the end of the year, according to the Swiss Institute for Business Cycle Research (KOF).

The engineering industry also reported "gratifying" first half-year figures, but the news came on the same day the government warned about rising levels of public debt.

KOF said on Wednesday that the Swiss economy had considerably picked up momentum over the first half of 2006 and would continue to stay healthy for the second six months without inflation becoming a major problem.

Jan-Egbert Sturm, head of KOF, said the economic upturn had extended beyond exports, with wage increases supporting consumer spending.

"Domestic demand has now taken a leading role in the current business cycle," he said.

The SFr370 billion ($300 billion) Swiss economy grew by 0.9 per cent in the first quarter and economists expect full-year growth to reach around three per cent, which would be the strongest in six years.

So far inflation in Switzerland has stayed well below the Swiss National Bank's ceiling of two per cent, but with the economy gathering speed, analysts expect the central bank to raise rates two more times this year.

Sturm said a downturn for the Swiss economy was not on the cards until the beginning of 2007 at the earliest.

Swissmem

Also on Wednesday Switzerland's largest export branch – engineering – reported that after a "gratifying" 2005 it expects further growth this year.

Swissmem, the umbrella organisation of the mechanical and electrical engineering industries, said exports clocked in at more than SFr33 billion, a 13 per cent rise on 2005. Sales grew by 5.5 per cent and new orders received by Swissmem's 290 reporting members were up by 24.7 per cent.

The Zurich-based organisation said the outlook for mechanical and electrical engineering industries over the next 12 months remained "favourable".

Reporting members said they expected in particular to see sustainable demand in China and Hong Kong in addition to Eastern Europe, Russia and Germany.

They added however that the volatility of crude oil prices remained an uncertainty.

Debt

In contrast to these positive developments, the government revealed on Wednesday that federal, cantonal and communal debt had reached almost SFr240 billion by the end of 2004.

In its report into the development of public debt, the government said urgent reforms of social security were necessary to avoid the debt increasing further.

The gross debt of SFr239 billion corresponded to 53 per cent of Switzerland's gross domestic product or a debt of SFr32,000 per person.

In addition, interest payments swallow some SFr7 billion a year – or almost seven per cent of the tax revenue.

The clearest increase in debt was at a federal level, going up by SFr88 billion since 1990. In 2004 the federal debt of SFr130 billion made up more than half of public debt.

swissinfo with agencies

In brief

Swissmem is the umbrella under which the two associations of the Swiss mechanical and electrical engineering industries - the ASM Association of Swiss Engineering Employers and the VSM Swiss Association of Machinery Manufacturers - represent the interests of their nearly 1,000 member companies.

The industries occupy a key position in the Swiss economy. With about 309,000 employees, they are Switzerland's biggest industrial employer by far.

They export goods worth SFr55 billion (2003), equivalent to 42% of the country's visible exports.

Their goods range from technically sophisticated products and services to entire systems and plants.

end of infobox

Key facts

Swiss economic growth forecast 2006:

State Secretariat for Economic Affairs: 2%
Swiss National Bank: 2.5%
UBS: 3.0%
Credit Suisse: 2.8%
Swiss Institute for Business Cycle Research (KOF): 2.1%
BAK Basel Economics: 2.7%
IMF: 2.2%
OECD: 1.75%

end of infobox


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