Financial experts welcome “rosy situation”

Consumer spending is expected to support growth rates Keystone

Zurich's Institute for Business Cycle Research (KOF) has raised growth forecasts and believes the Swiss economy will continue to thrive.

The economic institute added on Tuesday that risks from inflation would remain small.

Gross domestic product (GDP) was seen increasing by 2.4 per cent in 2007 by KOF’s specialists, up from an earlier forecast of 2.1 per cent.

For 2008 the institute pencilled in growth at 2.5 per cent, up from 1.5 per cent.

“We are growing above potential and will stay above potential, so we’re in a phase of economic boom,” said KOF head Jan-Egbert Sturm. “It is a very rosy situation and it’s good news.”

KOF added there would be less of an impact from exports on the SFr450 billion ($370 billion) Swiss economy in 2007 and 2008, but private consumption would support growth rates as the labour market continued to improve.

Recent economic data indicate growth will continue in 2007, although the pace will slacken during the second and third quarters, and KOF, like most analysts, expects growth to drop only slightly from 2.8 per cent last year.

Inflation

At the same time KOF said there was little pressure from inflation on the Swiss National Bank (SNB) to raise official interest rates.

KOF reduced its forecast for inflation for 2007 from 0.7 per cent to 0.3 per cent.

Earlier on Tuesday Swiss consumer prices showed the virtual absence of price rises.

The index rose 0.2 per cent from a year ago and 0.1 per cent month-on-month, in line with the SNB’s forecast.

“In principle we don’t see the need for further interest rate hikes. But looking ahead, there will probably be another rate move,” Sturm said.

On March 15 the SNB raised its main interest rate for the sixth consecutive quarter by 25 basis points to 2.25 per cent and signalled it would raise it again in June.

swissinfo with agencies

Key facts

Growth forecasts for the Swiss economy in 2007:

BAK Basel Economics: 2.1%
State Secretariat for Economic Affairs (Seco): 2%
Swiss National Bank (SNB): 2%
Institute for Business Cycle Research (KOF): 2.4%
UBS: 1.5%
Credit Suisse Group: 2%
OECD: 2.2%

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.

Economic confidence

Economists at Zurich’s KOF are showing more confidence than their colleagues in Bern and Basel.

The State Secretariat for Economic Affairs (Seco) in Bern last week raised its 2007 forecasts from 1.7 per cent to 2 per cent – not as high as KOF.

The BAK Basel Economics research organisation is also erring on the of caution, forecasting growth in 2007 of 2.1 per cent.