UBS slashes growth forecast in wake of attacks

Warburg joins other banks as it cuts its forecast for the Swiss economy Keystone

UBS Warburg has slashed its forecast for Swiss economic growth in 2002 in the wake of the September 11 attacks in the United States. The bank said the weakening American economy was dragging down growth in Switzerland.

The investment-banking arm of Switzerland’s largest bank, UBS, said it expected the Swiss economy to grow by just one per cent next year, compared with its previous forecast of 2.1 per cent.

However, it maintained forecast for 2001 at 1.6 per cent.

The bank said the already weak US economy “has deteriorated massively” since the September 11 attacks on the World Trade Center and the Pentagon.

It said consumer spending had been propping up the US economy but that the direct effect of the attacks and the increased uncertainty on the financial markets should serious depress consumer sentiment and in turn consumer spending”.

UBS predicts that the result will be three successive quarters of negative growth in the US – which constitutes a recession – and the knock-on effect will a sharp decline in growth in Europe.

“The Swiss economy is unlikely to rebound until the second half of 2002, returning then to its trend growth of 1.8 per cent in 2003,” the bank said.

It added inflation would not be a problem and was forecast at 1.1 per cent for 2001 and one per cent for 2002.

“Given the strong Swiss franc, we expect the Swiss National Bank (SNB) to continue its policy of monetary easing in the months ahead,” UBS Warburg said.

The SNB on Monday cut its key rates target by 50 basis points to a range of 1.75-2.75 per cent for three-month Swiss Franc LIBOR, citing concerns about the franc against the euro.

It followed a similar cut on September 17, when the SNB cited slowing Swiss growth and a lack of inflationary pressures.

UBS Warburg is not the first Swiss bank to reduce Swiss GDP forecasts. Bank Julius Baer on Friday reduced its GDP forecast to 1.3 per cent in 2002 from 2.1 per cent.

Morgan Stanley economist Christel Rendu said on Tuesday that she was reducing her 2002 forecast to around one per cent from two per cent previously.

swissinfo with agencies