Jobless rate set to surge

The job market looks gloomy Keystone

Switzerland’s unemployment rate is set to worsen over the next two years, according to the country’s leading economic forecaster.

But while there is little hope of growth within the job market, Switzerland’s stagnant economy is due to show modest signs of recovery next year.

“Next year, we’ll see positive growth,” said Bernd Schips, the head of the Swiss Institute for Business Cycle Research (KOF).

Schips said the economy, after stagnating in 2003, would bounce back slightly, growing by 0.9 per cent next year and by 1.2 per cent in 2005.

But Schips added that the slight increase in gross domestic product (GDP) would not be enough to create new jobs.

“The unemployment rate will reach 4.5 per cent in 2005,” Schips said. Unemployment is currently running at around 3.8 per cent.

The grim forecast continues to be driven by concerns about economic weaknesses among Switzerland’s most important trading partners mainly in Europe, the Zurich-based institute said.

Spending cuts

KOF said the modest increase in growth would come from greater demand for Swiss exports from the United States and China – but added that economic recovery would be hindered by a drop in federal spending.

The Swiss parliament is currently debating wide-ranging budget cuts in an effort to rein in the country’s annual deficit, which will hit SFr7.1 billion this year.

KOF warned that the planned spending cuts could undermine new impetus for growth.

“In the 2004/2005 forecast period, public finances will increasingly exercise a restrictive influence,” KOF said in a statement.

Swiss franc

The Swiss currency is expected to rise after falling slightly against other major currencies in 2004 and 2005.

KOF said much of that would be driven by a gradual convergence in interest rates between Switzerland and the European Union.

“The franc should rise against the euro,” the institute said.

In other economic shifts, wages are set to grow by 1 per cent in 2004 and rise by 1.8 per cent in 2005.

And with inflation set to remain steady at around 1 per cent, most workers should enjoy a slight increase in real wages.

swissinfo, Jacob Greber in Zurich

Key facts

GDP will rise 0.9% in 2004 and 1.2% in 2005.
Unemployment rate will rise to 4.3% in 2004 and 4.5% in 2005.
Consumer prices will grow by 0.6% in 2004 and 1% in 2005.
The Swiss Institute for Business Cycle Research (KOF) is one of the country’s top economic forecasters.