Experts say Swiss economy is past its peak

Consumer demand will continue to drive the Swiss economy Ex-press

The booming Swiss economy is likely to slow significantly next year, according to experts from the KOF Swiss Economic Institute.

Experts forecast the current growth rate will shrink gradually by the end of the year as a result of weaker exports, but they don’t expect the turmoil on the financial markets to have a real impact on the Swiss economy.

“I think most of the financial crisis is over and I see only limited risks for the real economy in Europe and Switzerland,” said KOF head Jan-Egburt Sturm on Friday.

Central banks had reacted quickly and had cushioned most of the problems in the interbank market, he said, adding that the subprime crisis would hurt growth in the United States and dampen US demand, but the impact on Europe would be limited.

The institute said gross domestic product (GDP) would increase 2.8 per cent this year but it cut its growth prediction for 2008 from 2.5 per cent to 1.9 per cent. For 2009 KOF sees growth at 2.0 per cent.

“The available indicators and surveys show sustained and broad-based economic growth. The rate of export growth, however, has slowed down lately and construction is stagnating at a high level,” a statement said on Friday.

“The peak was probably reached around the middle of this year.”

Experts say domestic demand should continue into 2008. It has supported the economic upswing, which began after a brief recession in 2003 and was driven by export-oriented manufacturing industries and the financial sector.

Inflation

The Zurich-based institute says there are hardly any signs of inflation on the horizon and the Swiss National Bank (SNB) is not likely to raise interest rates further.

“Neither tensions on the goods market nor the weakening of the Swiss franc have caused prices to rise any faster,” the statement adds.

The central bank expects growth close to 2.5 per cent this year and a slowdown to around two per cent in 2008.

The unemployment rate – currently at 2.7 per cent – will continue dropping to 2.2 per cent next year, according to KOF.

But is says that the strong growth in employment will cause only a modest increase in productivity.

swissinfo with agencies

Key facts

KOF growth forecast:

2007: 2.8% (April: 2.4%)
2008: 1.9% (April: 2.5%)
2009: 2.0%

Economic forecast comparison

State Secretariat for Economic Affairs (Seco): 2.3% (2007); 1.9% (2008).

Swiss National Bank: 2.5% (2007); 2% (2008).

KOF Swiss Economic Institute: 2.8% (2007); 1.9% (2008); 2.0% (2009).

BAK Basel Economics: 2.7% (2007); 2.3% (2008).