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Swiss firms reject recession fears

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Switzerland is not heading for a recession despite a predicted slowdown in turnover and profits, according to a cross-industry survey of firms.

The survey, conducted by the KOF Swiss Economic Institute, showed Switzerland faring better than global rivals thanks to a strong domestic economy and traditional strengths in finance and commodities trading.

The banking sector is particularly upbeat about prospects in the second half of the year after suffering from the United States subprime mortgage crisis in the past few months.

However, the construction industry and firms that rely on exports outside the European Union are bracing themselves for a stagnation of business for the remainder of 2008.

“There is a distinction between domestic and export-oriented firms. Switzerland is an open economy and will ultimately have to take its place in the international environment, but at the moment it is in the lucky situation that the domestic economy is performing very well,” KOF head Jan-Egbert Sturm told swissinfo.

“We have seen a substantial increase in the labour force, people have seen substantial salary increases in the last couple of years and are still consuming at a healthy level.”

Sturm’s comments were echoed by Swiss National Bank chairman, Jean-Pierre Roth, who recently told the Financial Times that Switzerland was to an extent “isolated” from the global economic troubles.

“We probably will have better economic growth than most of our neighbours because we still have very strong domestic demand. We still have a very stable labour market – almost full employment,” he said.

Warning signs

But there have been recent signs of a weakening in the Swiss economy.

The manufacturing sector has been shaken by a series of poor financial results in recent weeks alongside future profit warnings. Industry giants Georg Fischer, Rieter, Oerlikon and cement makers Holcim have all disappointed the market with their performance in the first half of the year.

Textile machine makers Rieter announced a massive restructuring exercise affecting 15 per cent of its staff and will shut down an automotive plant in the US. Chemicals firms Ciba and Clariant have also been hit hard by the rising cost of raw materials.

The latest barometer test by Swiss bank Credit Suisse and the Centre for European Economic Research in August found that 80 per cent of analysts predicted a deterioration in company earnings and profits in the next six months.

Confident message

But Sturm is still confident that the Swiss economy will hold firm against the pressure.

“We will see a moderation of growth but not to the extent that we will go into a stagnation phase or a recession,” he told swissinfo.

“One important reason for that is that Switzerland is benefitting from the turbulence in the financial sector. The big banks did have big problems, but looking at the broader perspective, if people want to sell they still come to the Swiss financial sector to complete their transactions.”

Sturm also pointed to Switzerland’s strength as one of the world’s biggest commodity trading centres.

“At the same time there is a lot of trade in raw materials and Switzerland has a special situation compared to other countries. If oil-producing countries are doing well and producing oil then that has an indirect effect on business in Switzerland,” he said.

swissinfo, Matthew Allen in Zurich

The KOF survey was sent to 11,000 companies in the finance, industrial, retail, construction, services, hotel and catering industries. There was a 61% response rate.

Banks and insurance firms predicted a significant upturn in fortunes in the next six months. But this must be set against a particularly bad first half of the year.

Construction was the only industry to expect a negative short-term future impact on turnover and profits.

Export-oriented firms also painted a bleak picture, but the industrial sector as a whole predicted only a slight downturn in the latter half of 2008.

Swiss Secretariat for Economic Affairs (Seco)
1.9% (2008)
1.3% (2009)
(June 23, 2008)

KOF
2.0% (2008)
1.8% (2009)
(June 23, 2008)

Swiss National Bank
1.5-2.0% (2008)
— (2009)
(June 19, 2008)

BAK Basel Economics
2.0% (2008)
1.6% (2009)
(June 13, 2008)

Swiss Business Federation, economiesuisse
1.5-1.7% (2008)
1.0% (2009)
(June 12, 2008)

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SWI swissinfo.ch - a branch of Swiss Broadcasting Corporation SRG SSR