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Swiss economy shrinks, analysts forecast short recession

29th May 2015, Comments 0 comments

The Swiss economy contracted by 0.2 percent in the first quarter of this year, the national statistics agency said Friday, with some analysts forecasting a brief recession, as the sharp appreciation of the franc hammered the country's key export sector.

"The trade balance in goods and services in particular delivered negative growth contributions," said SECO in a statement.

Exports of goods fell by 2.3 percent as the Swiss franc jumped in value.

The Swiss central bank (SNB) in January abruptly abandoned its three-year effort to hold down the franc's exchange rate to protect exports, leading it to soar against the dollar and euro, ahead of the ECB's introduction of its massive stimulus programme.

SECO said the drop in exports was visible in "virtually all sectors", with chemicals and pharmaceuticals making a "significant negative contribution".

The categories of machinery, equipment, electronics as well as precision tools, watches, jewellery also reported a fall in exports, it added.

Overall, the trading sector contracted by 1.9 percent, accommodation fell by 3.8 sectors and manufacturing industry dipped by 0.1 percent.

The transportation, information and communication sectors fell by 0.4 percent and the finance sector dropped by 0.6 percent, said SECO.

Household consumption helped attenuate the fall in GDP, rising 0.5 percent, while government spending increased by 0.1 percent.

The Swiss economy grew by a strong 0.6 percent in the final quarter of 2014, and by 2.0 percent overall during the year.

Analysts lowered their growth forecasts after the SNB's move, some even seeing a brief recession, but have recently become less pessimistic.

While Swiss companies are likely to have their margins squeezed, the pick up in the eurozone and US economies should help Switzerland deal with the strong franc.

Both SECO and the KOF Economic Institute think tank both forecast the economy to continue to post modest growth this year.

KOF's monthly economic barometer rose to 93.1 points in May, it said Friday, an increase of 3.3 points from the revised reading for April, mostly due to improvements in the manufacturing sector.

It said the reading showed "in the near future the Swiss economy can be expected to exhibit growth rates clearly below average."

Analysts at Swiss private bank J. Safra Sarasin said the economy had probably entered a recession, which is formally defined of two consecutive quarters of contraction.

"We expect that Q2 GDP will contract by even more than Q1 did such that the Swiss economy can be said to be in a recession right now," it said in a note to clients.

It still forecasts a rebound in the second half of the year, with GDP growth of 0.7 percent for 2015 overall.

London-based Capital Economics said the first quarter GDP data "probably exaggerate the true hit to exports from the appreciation of the franc.

Nevertheless, with the franc likely to remain high, it forecast only modest growth of around 0.5 percent this year.

© 2015 AFP

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