Experts say market turmoil won’t slow economy

The market crisis won't affect the Swiss economy, say experts Keystone

The recent turmoil on the world's financial markets will only have a limited impact on the booming Swiss economy, says the KOF Swiss Economic Institute.

The conclusion of a survey of Swiss companies published on Wednesday by the institute was that the economy was likely to keep on growing strongly in the second half of the year.

“The economy is so robust it should weather the effects,” said KOF head Jan-Egbert Sturm at a media conference in Zurich. “I would expect only moderate effects.”

High default rates for US sub-prime mortgages triggered a crisis in financial markets that has spread to other countries.

The situation led to losses on the world markets, including Switzerland’s bourse, earlier this month.

KOF’s positive outlook comes soon after Swiss National Bank (SNB) president Jean-Pierre Roth made a similar prediction about the robustness of the Swiss economy.

Roth said both domestic demand and consumer figures were good this year.

KOF’s most recent business survey noted that the Swiss economy was likely to keep its strong pace of growth for the second half of the year.

Few jitters

The companies questioned said that business was doing well and that production was likely to increase. Most said that they expected this situation to continue in the near future. The only jitters came from the construction sector.

Sturm also allayed fears that the recent stock market correction could lead to banks restricting credit to small and medium-sized enterprises (SMEs). He believes lending problems will largely be confined to the US with only a small chance of a knock-on effect in Switzerland.

“I don’t see a direct danger of having a credit crunch within Swiss borders. If banks are more restrictive on providing credit it will only be in a very limited way. I don’t see why the banks should suddenly change the way they talk to Swiss firms,” he told swissinfo.

Sturm added that a recent mild appreciation in the Swiss franc as investors transferred their money to safer waters would have little immediate effect on the import/export sector in Switzerland.

And he expects the Swiss National Bank to continue with its present monetary policy by raising interest rates once more next month.

“Unless the market turbulence continues like it did in the last few weeks I don’t see a real reason for the SNB to change its policy,” he said.

swissinfo

Key facts

Overall growth forecasts for the Swiss economy in 2007:
UBS: 2.6%
Swiss National Bank (SNB): 2.5%
BAK Basel Economics: 2.5%
KOF Swiss Economic Institute: 2.4%
State Secretariat for Economic Affairs (Seco): 2%

In brief

KOF Swiss Economic Institute is part of the Federal Institute of Technology in Zurich. It is one of the leading economic institutes in the country.

This latest survey was carried out in July and August this year among companies in industry, the services and the building sector. 9,000 surveys were sent out, of which almost 60% were completed.