Swiss economy to shrink 2 percent in 2009

10th March 2009, Comments 0 comments

The IMF expects a greater decline in the economy than Swiss officials predicted.

GENEVA - The International Monetary Fund forecast on Monday that the Swiss economy would shrink by at least 2.0 percent in 2009, or double that of the Swiss official forecast.

"We expect a significant decline in the Swiss economy in 2009... the number for 2009 will likely start with a 'two,'" said Paul Hilbers, who leads an IMF delegation which carried out a survey on the country between 25 February and 9 March.

Swiss officials forecast in mid-December that the economy would shrink by 0.8 percent in 2009 and then expand by 1.0 percent in 2010.

Switzerland's State Secretariat for Economic Affairs suggested in remarks published on Sunday that the forecasts would be cut when the department publishes fresh estimates on 17 March.

"We are putting together the forecasts currently. However I can already say now that GDP will fall more this year and next year than we had earlier expected," Jean-Daniel Gerber told NZZ am Sonntag.

The IMF also said that additional instabilities in the Swiss financial system may occur, even after the government launched measures to strengthen the system.

"The IMF does not rule out another wave of instabilities in the financial system," said the IMF in a statement.

"There are risks in particular linked to a possible decline in asset values of the big institutions and funding constraints in international capital markets," said the IMF.

In 2008, the Swiss government unveiled an aid package worth almost USD 60 billion (CHF 69 billion, EUR 47.5 billion) for the country's biggest bank UBS, in an attempt to stabilise the financial system.

The package saw the government taking a temporary stake of 9.3 percent in UBS, which posted unprecedented losses on the financial crisis, and lent a massive USD 54 billion to the bank to isolate its illiquid assets.

The IMF said in a report that there "remain risks to major banks" amid the ongoing downturn, including risks associated with exposures to "vulnerable emerging market countries."

"While most distressed assets have been written down, hedged or transferred from the balance sheet, the banks have not removed all such assets," it said.

The IMF said the government may take further measures to address pressures on the financial sector.

"Further declines in asset values may yet create a need for new government capital injections, while potential funding constraints due to deleveraging in international capital markets may call for government guarantees," it said.

AFP / Expatica

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