Experts predict better economic outlook

The machine industry is expected to drive the economy Keystone

Zurich's Institute for Business Cycle Research (KOF) has upgraded its economic outlook for the end of the year and 2007, but warns there will be a slowdown.

The forecast confirms those of other leading Swiss economic forecasters, who are all counting on a better than expected increase in Switzerland’s Gross Domestic Product.

KOF’s experts said on Thursday that the economy would grow by 2.1 per cent next year, while the rate would slip to 1.5 per cent in 2008 as momentum from abroad weakens.

The institute’s leading economic indicator had previously set expected growth for this year at 2.1 per cent, but its latest prevision puts the rate at 2.6 per cent. For 2007, the increase of Swiss GDP had been estimated at around 1.9 per cent.

Overall, KOF expects growth be driven mostly by the domestic economy. Export opportunities will suffer from a weakened US economy next year as well as a devalued dollar, and should not pick up again until 2008.

Private consumption will increase substantially, with real disposable household income at its highest level since 2001. With more jobs available, wages on the rise and bigger bonus payouts, the Swiss will have money to spend.

Manufacturing is set to benefit from this, as will the services sector, especially the retail business and hotels and restaurants.

Credit Suisse and Seco

Earlier this week, economists at Switzerland’s second-biggest bank, Credit Suisse, said that GDP would probably rise 2.8 per cent this year, with growth slowing to 2.2 per cent in 2007 because of a global economic downturn.

However, they view the slowdown as a “healthy pause” in a longer cycle of expansion. “Despite this (the slowdown) the current upswing in the Swiss economy is vigorous and sustained,” they said.

The slowdown predicted for 2007 would be accompanied by a dampening of foreign demand for Swiss goods and services.

The bank’s outlook was more favourable than that given a day earlier by the State Secretariat for Economic Affairs (Seco), which raised its 2007 growth forecast to 1.7 per cent from the 1.5 per cent, predicted in June.

Seco’s experts warned growth would ease in Switzerland next year, with domestic and foreign demand declining amid the slowdown of the world economy.

As potential risks to Switzerland’s economy, Seco saw a possible strong slowdown in the US, a rapid depreciation of the dollar and an end to the recovery in the labour market in the Euro zone.

The economists said however that growth should continue to be solid in 2007 in Switzerland and globally.

swissinfo with agencies

Key facts

Growth forecast for 2007:
State Secretariat for Economic Affairs: 1.7%
UBS 1.4%
Credit Suisse: 2.2%
Swiss Institute for Business Cycle Research (KOF): 2.1 %
BAK Basel Economics: 1.8%
IMF: 1.9%
OECD: 1.8%

In brief

Gross domestic product (GDP) is the main index for monitoring an economy’s performance.

GDP measures growth from the point of view of production. Purchasing power, revenue disbursement or the level of development also provide insights into a nation’s standard of living.