Economy contracts but no new recession

A slowdown in exports hit growth. Kühne + Nagel

The Swiss economy shrank unexpectedly in the last quarter of 2004, with gross domestic product (GDP) falling for the first time in more than a year.

But federal economists say the negative development is in line with world trends and does not spell the start of a new recession.

The State Secretariat for Economic Affairs (Seco) said on Thursday that compared with the previous quarter GDP fell by 0.1 per cent – the first drop after five consecutive quarters of growth.

It said the cooling down of the economy was the result of a slowdown in capital investment, only moderate growth in consumer spending and disappointing export figures.

But it said that compared with the same quarter in 2003, the economy had actually grown by 1.2 per cent.

In a statement, Seco described the drop in GDP as a “temporary halt in growth”.

“In line with a weakening global economy, the Swiss economy showed a significant cooling down in the fourth quarter of 2004,” it said.

“But this should just be a temporary halt in growth and not the start of a new downturn.”

In a first estimate of the full-year 2004 GDP figures, Seco said the economy had grown at 1.7 per cent, adding that Switzerland was expected to benefit from an upturn in the world economy later this year.

Below expectations

On Wednesday Bernd Schips, director of the Swiss Institute for Business Cycle Research (KOF), said the economic recovery was continuing but was not yet a sustainable one.

A KOF report said Swiss companies were expected to invest more this year than in 2004.

Analysts had expected growth in the fourth quarter of 0.3-0.5 per cent and expressed disappointment at the figures.

“The GDP figures have come in clearly below market expectations,” said Roland Kläger of Credit Suisse.

Reto Hünerwadel of rival bank UBS agreed: “[GDP is] clearly lower than expected, so it is not very good news. One must also see, however, that while it is predominantly investment which has come in lower, this is from extremely high levels [previously].”

But Stephen Webster of 4Cast said the Swiss slowdown was “not a massive surprise”.

“This is a reflection of a slowdown in global growth and the Swiss economy is following suit,” he said.

swissinfo with agencies

Key facts

Key fourth quarter 2004 figures:
GDP: -0.1%
Consumer spending: 0.2%
Investment: -1.5%
Exports: 0.4%
Imports: -1.2%
Seco expects GDP to grow by 1.5% this year.

In brief

Annual inflation in Switzerland increased to 1.4% in February from 1.2% in January.

There was a marked increase in the prices of oil and vegetables, according to the Federal Statistics Office.

The winter weather pushed up prices of heating oil, which was 37% more expensive than one year ago.