Swiss economy poised for better year ahead

Everybody, including Swiss, is expecting the economy to take off swissinfo.ch

The Swiss economy has been in the doldrums this year but it looks set to move upwards in 2004.

However, growth will at best be very modest and there are a number of question marks still clouding the horizon.

While 2003 was anything but spectacular on the economic growth front, there have recently been increasing signs that Switzerland has started to recover from a double-dip recession.

The economic barometer of the KOF Institute for Business Cycle Research has started to rise, pointing to a recovery next year.

The economy grew in the third quarter of 2003 for the first time in a year, boosted by improvements in the neighbouring euro zone and the increased competitive edge of a weaker Swiss franc.

However, economic recovery depends on a stable Swiss franc and a sustained improvement in Switzerland’s major export markets. The Swiss National Bank has kept interest rates low and is not expected to increase them until a recovery is clear.

Cautious

The main economic forecasters are cautious, predicting growth in a range of only 0.9 to 1.9 per cent.

Unemployment climbed to a five-year high in October passing the psychological barrier of 150,000. The KOF Institute believes the current jobless rate of four per cent could rise to 4.5 per cent by the end of 2005.

On the business front, the continuing crisis in the global airline industry continued to plague Switzerland’s troubled national airline, Swiss.

In an effort to steer the carrier into profit, company management wielded the axe, slashing staff and aircraft by a third, while also cutting dramatically the overseas route network.

In an effort to revive its fortunes, Swiss also introduced lower fares on dozens of European routes. But the architect of the no frills service, William Meaney, left over differences about the company’s future management structure.

Lower fares… more passengers

Although the lower fares brought in more passengers, they have yet to help the finances, with Swiss posting a loss of SFr613 million ($463 million) for the first nine months.

The company, which is losing more than SFr2 million a day, has been looking for some SFr500 million to bolster its balance sheet.

In September, Swiss proudly announced it was joining the Oneworld airline alliance, led by British Airways, but it was a move greeted with some scepticism in Switzerland’s newspapers.

The ABB engineering concern continued its battle in 2003 to put its financial house in order. The company drew up a $4 billion refinancing package after making a 2002 loss of $783 million. And to reduce its debt, it also sold off key assets.

The company also put its oil, gas and petrochemicals division on the market and came to a $1.2 billion asbestos liability settlement in the United States that still has to receive final court approval.

Heavy losses

Other Swiss top firms announced heavy losses in 2003 and made thousands of job cuts as a result. Among the “notables” were Credit Suisse, Zurich Financial Services and Roche but all three seemed to be on the recovery road by the end of the year.

Insurer Swiss Life hit the headlines too, with shares plunging by more than 20 per cent in March on fears about the company’s financial health.

And its image was severely dented a month later when authorities reported serious shortcomings concerning controls. The criticism followed an inquiry into a secretive fund operated by senior managers at the firm.

The heavy company losses were reflected at the stock exchange, with the Swiss Market Index of blue chips falling to 3,675.40 points in mid-March, its lowest level since 1996, before rising to around 5,400 as the year drew to a close.

In other business news, the Swiss medical devices company Centerpulse was taken over for the handsome sum of $3.1 billion by Zimmer of the US, which offered more for the firm than British rival Smith and Nephew.

In court

Several prominent Swiss found themselves in court in 2003, with mixed outcomes. While industrialist Thomas Schmidheiny was fined €1.5 million by a court in Spain for insider dealing, financier Martin Ebner was acquitted of a similar charge by a district court in Zurich.

Switzerland’s reputation as welcoming place to visit was hit for six in April when Hong Kong pulled out of the Basel international watch fair after being banned from conducting business over contagion fears of the deadly Sars virus.

But fences were mended later in the year and Hong Kong decided to return after receiving pledges of a prime location at future Basel fairs.

swissinfo, Robert Brookes

In brief

After a disappointing performance in 2003, there are increasing signs that the Swiss economy will move on a growth path in 2004.

But forecasters are warning that GDP growth will at best be modest.

Many of the big Swiss companies showed signs of improvement in the second half of 2003, after making huge losses in 2002.

But investors’ and media eyes in 2004 will still be focused on the performance of companies such as the airline Swiss and the ABB engineering concern.