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Swiss growth grinds to a halt as eurozone malaise spreads

Growth in Switzerland has ground to a halt, official data showed Tuesday, suggesting that while the wealthy Alpine nation has survived years of European financial turmoil relatively unscathed, weakness in the eurozone has begun to rub off.

Between April and June Swiss gross domestic product stagnated, with zero growth from the previous quarter, according to statistics from the State Secretariat for Economic Affairs, or SECO.

While year-on-year, the country still saw its economy inch up 0.6 percent, the numbers fell far short of the expectations of economists polled by financial agency AWP, who had anticipated seeing quarterly growth of between 0.3 and 0.9 percent and of as much as 2.1 percent from last year.

They also bear witness to a dramatic economic slowdown from the January-March period, when growth stood at 0.5 percent over the previous quarter and 2.1 percent year-on-year.

"It’s a big surprise because most observers were not expecting such weak numbers," Julius Baer analyst Janwillem Acket told AFP.

– ‘No longer an island’ –

He said that the slowdown indicated that "the eurozone malaise has reached Switzerland to a certain extent", and that the country "is no longer an island of strong growth surrounded by a stagnating euro".

Capital Economic analyst Jennifer McKeown agreed, pointing out in a note that Switzerland seemed to be "feeling the effects of weakness in the eurozone, its major trading partner".

SECO attributed Switzerland’s stagnating growth to its trade balance in goods and services, which dipped into negative territory, although it stressed that private household consumption had served as a counterweight.

During the three-month period, Swiss service exports, including tourism, rose 0.6 percent from the previous quarter, while service imports to the country swelled 2.4 percent.

Exports of goods, excluding precious metals, jewellery, gems, artworks and antiques, meanwhile rose 0.7 percent in the second quarter, although that growth was matched by a 0.7 percent hike in imports.

While jewellery exports were up, alongside sales from Switzerland’s vital pharmaceutical industry, exports from the mechanical and electrical engineering industries were down.

And although private household spending grew a modest 0.2 percent, government spending slipped 0.3 percent.

Acket said the domestic numbers were not too troubling and that Switzerland’s main problem was its external trade.

Going forward, the country will greater reflect "the modest average growth in eurozone countries," he said, pointing out that Switzerland’s biggest trading partners in the bloc — Germany, France and Italy — all stood at zero or negative growth.

Following Tuesday’s announcement, Acket said he had "brutally" revised down his outlook for Swiss growth, and now expects the country’s economy to grow 1.1 percent this year, down from his previous estimate of 2.0 percent.

For next year, he is now forecasting growth of 1.6 percent, down from a previous forecast of 2.3 percent.

In an interview published Sunday in the NZZ am Sonntag weekly, the head of Switzerland’s central bank Thomas Jordan acknowledged that the economic atmosphere in the country had "clearly deteriorated."

"The macroeconomic risks have grown in recent weeks," he said.

The central bank, which in June said it expected to see economic growth of around 2.0 percent this year, is set to hold its next quarterly meeting on September 18.