More rate rises loom as economy forges ahead

Swiss National Bank President Jean-Pierre Roth expects the economy to grow by two per cent in 2007 Keystone

The Swiss economy will be buoyant in 2007 and is expected to head towards full employment according to the National Bank.

Its president, Jean-Pierre Roth, said the bank would maintain its path of interest rate hikes to prevent the expanding economy from overheating although inflation remains under control.

“All in all, Gross Domestic Product growth will be slightly above 2.5 per cent in 2006 and slow somewhat in 2007, although staying around two per cent,” he said during a speech in Geneva on Monday.

The central bank’s outlook for next year is rosier than that of the government or the country’s largest commercial bank, UBS, which predict economic growth will slacken to around 1.4 or 1.5 per cent.

Roth said inflation was still under control despite certain question marks over energy prices and a job market that the bank expects to head towards full-employment next year.

“We don’t see dangers for prices stability in 2006 or 2007,” added the president.

Inflation is expected to stay below 1.5 per cent in 2006 on average and remain at a similar level next year.

Fruity

Roth said that the interest-rate normalisation that the central bank started in December 2005 was starting to bear fruit.

“Nevertheless, the good economic performances – domestically as well as internationally – and a high level of capacity utilisation require that we continue with it.

“This is all the more true as the depreciation of the franc versus the euro has loosened monetary conditions significantly since our last decision taken in mid-June,” said Roth.

The central bank raised its benchmark interest rate to 1.5 per cent in June. Experts expect the bank to maintain its steady path of 25 basis-point increases at forthcoming policy meetings in September and December.

Rosy

The latest news from the central bank echoes recent forecasts from Swiss experts and sectors of business.

Last week the Zurich-based Institute for Business Cycle Research (KOF) said that the Swiss economy had considerably picked up momentum over the first half of 2006 and would continue to stay healthy for the second six months without inflation becoming a major problem.

The institute said the economic upturn had extended beyond exports, with wage increases supporting consumer spending.

The central bank, for its part, said that in the second half of the year it predicts the dynamics of GDP to slow down slightly compared with the strong expansion in the first half.

The SFr370 billion ($300 billion) Swiss economy grew by 0.9 per cent in the first quarter and economists expect full-year growth to reach around three per cent, which would be the strongest in six years.

swissinfo with agencies

Key facts

Swiss economic growth forecast 2006:

State Secretariat for Economic Affairs: 2%
Swiss National Bank: 2.5%
UBS: 3.0%
Credit Suisse: 2.8%
Swiss Institute for Business Cycle Research (KOF): 2.1%
BAK Basel Economics: 2.7%
IMF: 2.2%
OECD: 1.75%