Economy on recovery course but slow ahead

The economy appears to be slowly grinding into life Keystone

There are increasing signs that the Swiss economy is at last coming out of the doldrums, but any recovery is expected to be weak at best.

The blue-chip Swiss Market Index reached its highest point of the year this week, fuelling hopes that the economy will pull out of recession soon.

At the close of trading on Friday, the SMI had reached 5310.60 points, more than eight per cent up on the 4,899.50 recorded at the end of the first day’s trading in January.

“I think it is definitely a sign of better times ahead. I think the stock market is anticipating what the economy is likely to do,” Stéphane Garelli, a professor of economics at the International Institute of Management Development in Lausanne told swissinfo.

“I think we probably we have reached the bottom of the curve. We are really seeing the end of the recession and probably the third quarter will be much better,” he added.

Serge Gaillard, chief economist at the Swiss Federation of Trade Unions, is also of the opinion that the situation should improve – only slowly.

“While the United States is on the mend, the recovery in Europe will be delayed because domestic demand remains weak,” he told swissinfo.

There have been a number of factors influencing a more positive economic picture, not just in Switzerland but elsewhere as well.

Calmer waters

Garelli says there is a perception that the international situation is in calmer waters than it was a year ago.

“The price of oil is not as expensive as some people were fearing. It’s now at $28 a barrel and not the $40 that some had been forecasting,” he said.

Another plus point, he said, was that companies were feeling that the worst was over and forecasting that profits would rise.

Staying with the global picture, Garelli commented on the economy of the United States, often viewed as the motor for global economies.

“In the US, growth has been above two per cent in the first and second quarters, so some people are saying that we are probably heading in the right direction,” he said.

There also encouraging signs from Asia. The World Bank on Thursday reported that Asian economies were poised to grow at “rapid rates”, despite the conflict in Iraq and the outbreak of the Sars virus.

Economic growth in Asia, excluding Japan, is set to bounce to 6.3 per cent next year compared with 5.9 per cent this year.

It said the US and the European Union are projected to grow at 3.4 per cent and 1.7 per cent respectively in 2004.

Economic researchers in Switzerland are forecasting that Swiss GDP growth next year will be between 0.8 per cent and 1.6 per cent.

First recovery hints

In Switzerland, the influential economics research department of the Federal Institute of Technology in Zurich (KOF) last week reported that its latest business survey showed the first hints of a recovery.

But it was cagey in its outlook for the third and fourth quarters for the Swiss economy.

Garelli at the IMD told swissinfo there were historic reasons why any economic recovery in Switzerland would be weak.

“Recovery will be weak because, in general, economic growth is weak in Switzerland,” he explained.

“During the past ten years, we’ve had only one year in which the economy grew above three per cent and that was in 2000.”

“Most of our competitors are growing much faster than us and could post quite a number of years with growth of between two and three per cent,” he added.

Switzerland is heavily dependent on Germany, Europe’s largest economy,
which took 20.8 per cent of all Swiss exports in 2002.

But even Germany is in a phase of stagnation and is considered to be on the brink of stagnation.

Missed out

Switzerland, Garelli said, had missed out on the technological boom, not opening up markets quickly enough for the Internet, computers, telecommunications and mobile phones.

“In Switzerland, we have been very cautious, as always, and a lot of the growth did not happen. Those were markets which had double-digit growth.”

“When we opened those markets, probably it was a little bit too late. We are suffering from that,” he added

He also put his finger on problems that have haunted Switzerland for many years, liberalisation and a lack of competition.

“Let’s face it, Switzerland is still not a complete market economy. There are still a number of arrangements – I’m talking about cartels or pseudo cartels,” he said.

And he pointed out that there were still regulations preventing companies from acting as freely as they wanted, for example in public contract bidding.

However, like others gazing into their crystal balls as to how the Swiss economy will perform, Garelli is cautiously optimistic.

“One could say it’s quite hard to go even deeper than what we’ve experienced, so I think it is going to improve. It was a very long period of economic slowdown,” he added.

swissinfo, Robert Brookes

Key facts

The Swiss State Secretariat for Economic Affairs reported on Thursday that the Swiss economy remained in recession in the second quarter, shrinking by one per cent year-on-year. It shrank by 0.6% in the first quarter.
For 2003, Seco expects a slight decline in real GDP.
The Swiss economy has suffered from rising unemployment, which has hurt consumer confidence, while exporters have been challenged by a strong Swiss franc and weak global markets.
Seco is forecasting GDP growth of 1.6% in 2004. Credit Suisse suggests the economy will stagnate this year (0.0%) and grow by 1 per cent next year.
The number of unemployed in Switzerland at the end of August was 143,672 or 3.6% of the working population, some 1,973 more than at the end of July.

In Brief:

There are increasing signs that Switzerland is pulling itself out of economic recession but any recovery is expected to be modest.
Economic growth over the past decade in Switzerland has been fragile, except in the year 2000.
Professor Stéphane Garelli at the IMD in Lausanne says that Switzerland is still not a complete market economy.