Swiss economy plunging further than expected

Keystone

The global recession will this year have a worse impact on Switzerland than previously expected as the economy shrinks by 2.2 per cent, according to government data.

The State Secretariat for Economic Affairs (Seco) revised its previous prediction of a 0.8 per cent decline in gross domestic product (GDP) and forecast severe job losses, in a report released on Tuesday.

Seco analysts are the latest in a long line of economists to revise their forecast, some painting a bleaker picture than at any time since 1975. Many forecasters had originally believed Switzerland to be insulated from the worst ravages of the recession thanks to strong consumer demand and a stable housing market.

But the continued strength of the franc has severely dented the export-oriented industry. Production decreased by 5.9 per cent and sales receded by 1.7 per cent in the fourth quarter of last year compared with the corresponding period in 2007, the Federal Statistics Office said on Tuesday.

Demand for Swiss mechanical and electrical engineering products fell by a third in the last three months of 2008, the industry’s umbrella group Swissmem reported last month.

Strong franc

“The outlook of the global economy, already gloomy at the end of last year, has once again deteriorated considerably since the start of 2009,” a Seco statement said.

The sharp decline in fortunes for exporters has led the Swiss National Bank (SNB) to intervene in foreign exchange markets in an effort to stabilise the franc.

The SNB also lowered interest rates by 25 basis points on Thursday to a record low base rate of 0.25 per cent. At the same time, the central bank lowered its GDP outlook from a 0.5-1 per cent fall to a slump of 2.5-3 per cent this year.

Seco fears that unemployment, which rose to 3.4 per cent in February, will increase to 3.8 per cent in 2009 as a whole and to 5.2 per cent in 2010 – a 13 year high. A poll conducted by the KOF Swiss Economic Institute last week expected unemployment to peak at 4.3 per cent in 2009.

Job losses

The Swiss trade union umbrella group Travail Suisse has demanded that the government invests more financial money and introduces reforms to help stave off the threat of job losses.

Last week, parliament rubber-stamped a SFr710 million ($600 million) injection destined for infrastructure projects in the transport sector as well as energy, environment research and tourism. This followed a SFr980 million boost agreed last year.

Economics Minister Doris Leuthard said on Tuesday that a decision on a possible third financial package would be delayed until June when the economic situation becomes clearer.

But Travail Suisse also wants an extension to a state financed scheme that allows workers to reduce their hours while having their pay packets partially compensated. In February, the government increased the maximum duration of this scheme to 18 months, but trade unions are calling for another six months.

In addition, Travail Suisse want unemployment insurance payments to be lifted. “It is justified to prevent the financial crisis spreading to structural problems,” the body stated.

But economists are relatively optimistic about conditions after this year, with Seco predicting a 0.1 per cent growth in GDP in 2010. This prognosis is largely in line with other institutions.

swissinfo with agencies

Economic predictions

Official government figures, released in March, showed real GDP shrinking 0.6% in the last quarter of 2008 compared to the same period in 2007 (-0.3% quarter on quarter). Provisional figures showed the economy growing by 1.6% for the whole of 2008.

The export of goods and services plummeted by 8.1% quarter on quarter while imports also fell by 5.8%. Domestic consumer spending grew only by 0.1%.

Economists are predicting tougher times for this year and next:

Seco: -2.2% GDP in 2009, 0.1% in 2010

SNB: -2.5% to –3% 2009

UBS Wealth Management: -1.2% 2009, 0.2% 2010

Credit Suisse: -0.6% 2009

BAK Basel Economics: -2.1% 2009, 0.6% 2010

OECD: -0.2% 2009, 1.6% 2010