Swiss cuts 2011 growth forecast on eurozone debt woes

8th June 2010, Comments 0 comments

Swiss authorities on Tuesday cut the country's growth forecast for 2011 to 1.6 percent from 2.0 percent, citing "increased external trade risks" arising from the debt crisis in the eurozone.

For 2010, however, the State Secretariat for Economics Affairs sees stronger growth than forecast earlier as it raised its forecast from 1.4 percent to 1.8 percent.

"While the growth prospects for 2010 are even slightly better than anticipated until now, the Gross Domestic Product forecast for 2011 in light of increased external trade risks in connection with the euro crisis will be lowered slightly," it said.

The secretariat noted that Swiss exports -- about 60 percent of which goes to the eurozone -- would be hurt as European states tighten their belts.

"Restrictive financial policy in almost all euro countries at the same time is not likely to be possible without a damping efffect on the economy even if one considers that a reliable financial policy change could create trust in the financial markets and attenuate damping effects on demand," it noted.

The secretariat also warned that the increase in value of the Swiss franc against the euro was another negative.

The "greatest economic risk for Switzerland is still likely to be a suddenly excessive appreciation of the franc in relation to the euro," it added.

The Swiss franc, traditionally a refuge currency, has been gaining against the euro, falling below the psychological barrier of 1.40 francs per euro last week.

The secretariat gave a bearish reading of the eurozone debt crisis, saying that the problem was far from over.

"Despite substantial rescue measures, the underlying financial problems of the affected countries have not yet been resolved.

"Far from existing only in the eurozone, the turbulences in the financial markets therefore form a latent risk," it said, pointed to high indebtedness in Britain, the United States and Japan.

© 2010 AFP

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