Economy loses steam in third quarter

Exports contributed more to growth again in the third quarter. Kühne + Nagel

Growth of the Swiss economy slowed unexpectedly in the third quarter as investment declined, data indicated on Friday.

This content was published on December 1, 2006 minutes

However, the economy is healthy and economists still believe that the Swiss National Bank (SNB) will continue raising interest rates step-by-step.

Real gross domestic product (GDP) increased by 0.4 per cent compared with the second quarter, the State Secretariat for Economic Affairs reported on Friday. Growth in the second quarter was revised down to 0.6 per cent.

Economists surveyed by Reuters had expected growth of between 0.4 per cent and 0.8 per cent for the third quarter, with the average of 19 analysts at 0.7 per cent.

On a year-on-year basis, GDP grew by 2.4 per cent, falling short of economists' expectations of 2.9 per cent.

Seco, based in the capital, Bern, said the slightly lower pace of growth - compared with previous quarters - was mainly due to stagnation in the sector dominated by financial services.

Lively exports

On the demand side very lively exports and falling imports were particularly notable in the third quarter, Seco commented.

Gross capital investment fell by 0.2 per cent compared with the previous quarter due in part to much lower investment in commercial airlines, it added.

Analysts commented that the data was in line with recent weakness shown, for example, by the trend barometer of Zurich's Institute for Business Cycle Research (KOF), which is a part of the Federal Institute of Technology.

However, they said this did not change the overall positive outlook for the Swiss economy.

"It is not like Switzerland is going to fall off a cliff any time soon," commented UBS analyst Reto Huenerwadel. "The weakness in capital expenditure is likely to be temporary."

The SNB expects growth this year at just below three per cent, easing to about two per cent in 2007 as the economies of Switzerland's main export markets are expected to cool.

Performing well

Alexander Krueger from WestLB noted that this would still make 2007 the fourth year in a row in which the Swiss economy was performing well.

"There are no clouds on the horizon, especially when looking at the labour market," he said.

Despite the expected slowdown and very low inflation the SNB has clearly signalled its intention to keep increasing its key interest rate.

Economists are expecting a fifth consecutive quarterly 25 basis points rise this month, taking the rate to 2 per cent, and many see another step in March.

"The SNB rate in December is a done deal," said analyst Thomas Herrmann from Credit Suisse.

"But the question now is whether the SNB will move a bit slower afterwards and pushes the step that we see in March to June."

swissinfo with agencies

Key facts

Quarterly percentage changes:

GDP: +0.4
Private consumption: +0.5
Gross capital investment: -0.2
Exports: +2.8
Imports: -1.2

Year-on-year percentage changes:

GDP: +2.4
Private consumption: +2
Capital investment: +4.4
Exports: +8.3
Imports: +5.3

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In brief

Earlier this week the Organisation for Economic Cooperation and Development predicted GDP growth of 3% for 2006 and 2.2% for next year.

In its latest report the Paris-based group expects the percentage of people out of work in Switzerland to fall from 3.9 per cent this year to 3.6 per cent in 2007 and 3.3 per cent in 2008.

The Swiss National Bank (SNB) predicts that the unemployment rate will drop below 3% next year.

The bank forecasts inflation rates will average 1.3% in 2006 and 1.1% in 2007.

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