Government economists have revised downwards their estimates for growth in the current year from 1.5 per cent to 0.9 per cent, dashing hopes of an upturn.
Numerous banks and research institutes had already lowered their expectations in the light of the weak economic situation in the European Union – Switzerland’s biggest export market.
The State Secretariat for Economic Affairs (Seco) also lowered its forecast for gross domestic product (GDP) growth for 2006, to 1.5 per cent from 1.8 per cent.
The news comes in the week that Switzerland’s leading business barometer from the Swiss Institute for Business Cycle Research (KOF) dropped to an 18-month low in June, signalling that the economic slowdown was set to continue.
It also contributed to driving the franc to a 13-month low against the dollar on Friday.
"Given the flat economic development in the first quarter and a weaker export outlook resulting from a cooling off in the EU economy, Swiss economic growth this year is likely to be lower than previously thought," Seco said in a statement.
"The global economic framework conditions are worse now than a few months ago," it said, adding that there were no immediate signs of the economy picking up.
This bleak prognosis did not apply to the United States where the economy was beginning to grow, in line with expectations.
Seco said that the situation in the EU zone was particularly bad in Germany and Italy and could not be expected to improve before the autumn.
"We are working on the assumption that the improvement in economic conditions in the EU will give a boost to the Swiss economy towards the end of the year," said Seco chief economist Aymo Brunetti.
Exports were likely to start picking up at the end of the year, Seco said, fuelling a recovery that would see Swiss economic growth next year rise to 1.5 per cent.
But the continuing high price of oil price meant that even this modest increase was at risk, Brunetti warned.
Seco said the gloomy outlook indicated there would probably be no major improvement in the Swiss employment market. It forecast average unemployment of 3.8 per cent for 2005. This would drop slightly to 3.6 per cent next year.
The high unemployment - by Swiss standards - was expected to take its toll on consumption, the government body said, with private expenditure rising by just 0.8 per cent in the current year and 1.2 per cent next year.
swissinfo with agencies
The government's downwards revision of its growth forecast had been largely expected.
The Swiss National Bank set the tone two weeks ago when it lowered its forecast for 2005 economic growth to 1%.
Some analysts think the Seco forecast is too optimistic. For example, Bank Julius Bär expects GDP growth of just 0.7%.
Bernard Lambert at the private bank Pictet also believes a forecast of 0.9% is too high.