The government has increased its economic growth forecast for 2006 from two per cent to 2.7 per cent, bringing it closer in line with outlooks from other experts.

Inflation is expected to hover at 1.2 per cent while the unemployment rate could drop slightly to 3.3 per cent this year according to the State Secretariat for Economic Affairs (Seco).

Domestic demand is starting to pick up along with booming exports, a Seco statement said on Thursday.

"Goods exports have displayed an extraordinary dynamic since the beginning of 2006 and domestic demand has expanded rapidly."

Seco's chief economist, Aymo Brunetti, added the Swiss economy was in good shape and was beginning to have a positive impact on the employment market.

However, Seco left its growth forecast for 2007 unchanged at 1.5 per cent, saying rising interest rates could create less favourable conditions ahead.

"It's not a downturn, but merely a balancing out," Brunetti said.

The latest outlook for gross domestic product (GDP) puts the government more in line with the Swiss National Bank, which hiked its 2006 forecast to 2.5 per cent earlier this month.

The predictions of other institutes range between 1.75 per cent and three per cent.

Inflation tame

A leading economic indicator by the Institute for Business Cycle Research (KOF), published on Wednesday, showed a six-year high in June, signalling a pick-up in Swiss growth ahead.

The National Bank, which raised its benchmark interest rate to 1.5 per cent two weeks ago, expects the Swiss economy to grow a little over 2.5 per cent this year, helped by a healthy outlook for the global economy, and then to slow down in 2007.

Seco now sees inflation of 1.2 per cent this year, up from a previous forecast of 1.1 per cent. It lowered its outlook for the 2006 unemployment rate to 3.3 per cent from 3.4 per cent.

Economist Marcus Hettinger at Credit Suisse First Boston told Reuters news agency there was no reason to be alarmed about a hike in consumer prices.

"Inflation is still below the National Bank's target and we can expect that the gradual normalisation process will continue."

swissinfo with agencies

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