Economists have been cutting their forecasts for Swiss economic growth in the wake of the September 11 attacks in the United States. The general consensus is that growth will be almost flat because of the weakening outlook for America.
Credit Suisse said on Thursday that it expects the Swiss economy to expand by 1.6 per cent this year and next. On Wednesday, UBS Warburg slashed its growth forecast to just one per cent in 2002, saying the weakening American economy was dragging down growth in Switzerland.
Bank Julius Baer last week reduced its GDP forecast to 1.3 per cent in 2002 from 2.1 per cent, while 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.
Andreas Huffert, an economist at UBS Warburg, told swissinfo he expects US growth to be just 0.4 per cent next year. He added that signs of a slowdown are already apparent in Swiss domestic figures.
"We saw relatively weak data out of Switzerland in the second quarter, with only consumption still solid and all the other growth components declining," said Huffert.
Both Credit Suisse and UBS Warburg agree that the weakening in financial markets will depress consumer confidence in the US and this will have implications for Europe.
Recovery in second half 2002
But Credit Suisse chief economist, Alois Bischofberger, believes the Swiss economy will recover over the course of next year.
"The first half will probably be rather weak with low GDP growth rates," Bischofberger told swissinfo. "But the second half of the year will be better because of the improved outlook for the international economy, and improved growth in the US and also in the European Union."
UBS Warburg also expects the economy to rebound in the second half of next year. "We won't see a recession in Switzerland, neither will we see negative growth rates," explained Huffert.
"The business cycle is expected to bottom out in the first quarter of 2002, and then the second quarter will come in with slightly less than one per cent growth. The US business cycle is expected to pick up in the second half of 2002, when we will see a more pronounced growth rate in Switzerland."
Europe fails as counterweight
Economists had hoped the European economy would act as a counterweight to slackening growth in US. But Credit Suisse's Alois Bischofberger, says high interest rates and inflexible market conditions limited the scope for growth in Eurozone economies.
"There are well known rigidities in some European goods and services and also the labour market. And maybe the monetary policy in the EU was too tight in the year 2000 and the first half of this year."
Credit Suisse said in a statement: "The significant downturn in the Eurozone in 2001 has made it clear that the United States is the global economy's only real motor".
The Swiss National Bank (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 level of 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.
Strong franc could damage economy
UBS Warburg expects more action on interest rates from the SNB as long as the Swiss franc remains below SFr1.50 against the euro. Both UBS Warburg and Credit Suisse have warned that a strong franc could damage the economic growth outlook further as it makes Swiss exports more expensive abroad.
"Generally the economic slowdown will affect the export sector. The construction sector will also post a weak growth rate as will the machinery and chemical industries," said UBS Warburg's Huffert.
Warburg expects unemployment to rise to around 2.5 per cent in 2002 while Credit Suisse expects the jobless rate to rise to 2.2 per cent from 1.8 per cent in 2001. However, both banks say that the Swiss economy is still running close to full employment with continued shortages of skilled labour.
by Tom O'Brien