Experts disagree over course of economy

Keystone

Switzerland's economy is expected to post minus figures at the end of this year, but experts disagree by how much, according to the latest forecasts.

The Swiss Economic Institute (KOF) revised its forecast down on Friday by predicting gross domestic product (GDP) will sink by 3.4 per cent. Government figures, released on Tuesday, predicted a 1.7 per cent drop year on year.

The State Secretariat for Economic Affairs (Seco) had actually painted a more optimistic picture than during the summer, revising its forecast up from the previously published 2.7 per cent GDP contraction.

KOF, however, expects a more downbeat end to the year than it had predicted in June. The institute’s new figure is 0.1 per cent worse than its economists had thought after the first half of the year.

There is no arguing that Switzerland’s export-driven economy has been dragged down by sharply decreasing demand from around the world and by its banks becoming entangled in the financial crisis.

But the volatile nature of the current global recession has had economists double guessing and revising their estimates for the best part of two years.

More data available

KOF leader Jan-Egbert Sturm believes that surveys recently conducted with Swiss firms add another valuable layer of data on top of raw figures.

“With the data we now have at our disposal we clearly have the impression that [trading conditions over the winter] were more devastating than expected,” he told swissinfo.ch.

Manufacturing companies told KOF in the last few months that they were forced to drastically cut back on output and equipment. In addition, KOF has added data from the important commodities-trading sector in Switzerland.

“They made huge profits in the past and during the winter they made huge losses. This sector has become so important in the last few years that it actually matters now. These figures are not covered by Seco,” Sturm said.

But both sets of experts agree that the economy will pick up by in 2010, by 0.1 per cent according to KOF and 0.4 per cent by Seco figures. KOF also looked further ahead by predicting GDP growth of 1.4 per cent in 2011.

The predicted recovery would be led by export growth as the economy of other countries picks up, but there are two warning signs on the horizon.

Artificial stimulus wears out

The first involves an expected dip in European growth next year as government stimulus packages expire. Economists refer to this secondary setback as a “double dip”.

The Swiss parliament approved a third stimulus package this week amounting to SFr330 million ($322 million). But Sturm believes packages in other countries will have a greater bearing on Swiss GDP growth

“When the fiscal packages in Europe stop and the European economy is not continuing its growth path, that will have negative consequences for Switzerland. This is more important than the modest fiscal measures taken in Switzerland itself,” he told swissinfo.ch.

The second black cloud on the horizon is the predicted slow down in household spending as unemployment peaks in 2011, reaching 5.5 per cent according to KOF.

Private consumption accounts for about a third of Swiss economic growth, but KOF expects people to start spending more again in 2011 as wages increase next autumn.

Matthew Allen, swissinfo.ch

KOF autumn prognosis 2009

The Swiss Economic Institute expects GDP to contract by 3.4% for the whole year 2009 (3.3% forecast in June).

However, the economy is predicted to expand by a marginal 0.1% next year and 1.4% in 2011.

KOF believes exports of goods will increase by 2.3% in 2010 and 7.3% the following year, after a contraction of 12.5% in 2009. Service exports (that will sink 9.7% this year) will fall again by 4.7% in 2010 before growing by 4.4% in 2011.

Imports of goods are set to rise by 1.9% next year and 9.8% in 2011. Services coming into Switzerland will shrink 2.8% next year and rise a meager 0.6% in 2011.

Household spending will be stagnant for this year and next (0.7% and 0.3%), but recover to 1.4% growth in 2011 as wages increase. Real disposable income is forecast to increase by 0.8% next year and 2.1% in 2011.

This would be despite increasing unemployment that would peak at 5.5% in 2011.

Having been stung by unexpected events in the past, KOF wisely added the proviso that these predictions would only come true if stability returned to the world economy.