Economy to stay robust despite high oil price

Hurricane Katrina was responsible for the high prices at the Swiss pumps last September Keystone Archive

Record oil prices pose no threat to the Swiss economy at the moment, the State Secretariat for Economic Affairs (Seco) in Bern said on Tuesday.

Seco’s chief economist made the comment after London’s Brent crude hit an all-time high of $72.20 a barrel on fears that Iran’s nuclear standoff with the West could cut oil exports.

Aymo Brunetti said other economic factors including low inflation were so favourable that the forecast of two per cent growth this year (based on an oil price of $60) would not need to be revised.

Paradoxically, Brunetti said the sharp rise in the price of oil over the past couple of years was one of the reasons the Swiss National Bank had kept interest rates low, which in turn had boosted economic growth.

However, the economist said a further large increase in the oil price could drag down the economy.

Analysts say any major loss in oil production could push prices above $80 a barrel. Oil has almost doubled in price in two years due to increasing demand and threats to supply.

Increasingly sharp words between Iran, the world’s fourth largest producer, and the West over the Islamic Republic’s nuclear programme have led to fears that the dispute could cut Iranian oil exports.

The dispute comes as Iraq is struggling to boost production and supply from Nigeria has been slashed by almost a quarter by rebel attacks.

Pump price

Swiss consumers are currently paying around SFr1.70 ($1.33) for a litre of petrol, and the cost of heating oil is about SFr10 for 100 litres higher than it was a year ago.

The leading motorists association, the Touring Club of Switzerland (TCS), said the strong demand coupled with limited capacity at refineries in the United States would push prices at the Swiss pumps up to SFr1.80 a litre in the coming months.

The previous record for a litre of petrol in Switzerland was SFr1.77 last September.

swissinfo with agencies

In brief

The Swiss economy grew by 1.9% last year, and is expected to grow by 2% this year.

In its forecast for 2006, the Swiss National Bank (SNB) said economic development was increasingly broad-based.

The bank adjusted its forecast for inflation this year slightly upwards to 1%, citing pressure mainly from higher oil prices.

The SNB predicts inflation to be at 1.1% in 2007, down from a previous 1.2%, and at 2% in 2008.