Economy expected to keep on hitting high notes

Swiss industry expects to the good times to stay Keystone

Switzerland's economy is set to continue its above-average growth in the first half of this year but slightly below 2006 levels, according to a leading indicator.

This content was published on February 9, 2007 minutes

The Swiss Institute for Business Cycle Research (KOF) allayed fears expressed by the Swiss National Bank last December that over-optimistic businesses were showing signs of complacency.

The latest KOF prognosis, presented in Zurich on Friday, stopped short of forecasting growth figures, but predicted a rosy six months ahead for the industrial, building and service sectors.

However, the first signs of a gradual decline are already evident, particularly in the export sector that expects a slight decrease in production, KOF head Jan-Egbert Sturm told swissinfo.

"There are small indicators that growth will be restricted in future, but these are only minor reductions that are so small [that] it hardly matters," he said. "The economy will continue to grow well above its potential."

KOF also presented a survey of 1,100 firms in the service industry that revealed a continued optimism. The sector remains confident about its short-term outlook and demand for services.

Remain alert

Two months ago Swiss National Bank president Jean-Pierre Roth warned that businesses must remain alert against a false sense of security, saying that it was hard to believe that the world economy had now entered a phase of lasting and accelerating prosperity.

"The major challenge for international business today is, to my mind, to keep an eye open even when the waters appear calm," he told the European International Business Academy at the time.

But Sturm did not think the businesses surveyed displayed any lack of vigilance. "There would be a danger if this optimism was reflected in price developments," he told swissinfo.

"If firms are under the impression that they can increase profit by raising prices then this will create pressure. But we have no price pressure at present."

Sturm added that the weak state of the Swiss franc against the euro could bring the benefit of tackling Switzerland's status as a high price island. The euro has recently climbed to above 1.62 against the franc, sparking concern in some quarters.

"For the Swiss economy this is a positive aspect for the internal market provided that there are no sudden shocks [exchange rate fluctuations] in the future," he said.

"This could lead to a modest depreciation of Swiss goods compared with other countries that should stimulate internal competition and improve prices."

swissinfo, Matthew Allen in Zurich

Key facts

Growth forecast for 2007:
State Secretariat for Economic Affairs: 1.7%
UBS 1.4%
Credit Suisse: 2.2%
Swiss Institute for Business Cycle Research (KOF): 2.1 %
BAK Basel Economics: 1.8%
IMF: 1.9%
OECD: 2.2%

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