Swiss economy shows “spark”

The Swiss economy is on a roll Keystone

Switzerland's leading banks have revised upwards their predictions for the country's annual gross domestic product (GDP), reckoning on healthy economic growth.

On Wednesday UBS raised its growth forecast from 2.3 to three per cent – a day after Credit Suisse hiked its GDP prediction from 2.1 to 2.8 per cent.

The International Monetary Fund (IMF) also said on Tuesday that “the Swiss economy is showing some spark” and forecast growth in 2006 of more than two per cent.

UBS said a “surprisingly” strong first quarter boded well. “It is promising that economic activity is not only robust but also broadly based. Most economic indicators suggest that the prospects for the current year remain good.”

Switzerland’s largest bank predicted growth would slow down to 1.4 per cent in 2007, up from the 1.3 per cent previously forecast.

Credit Suisse on Tuesday also revised its forecast as a result of the unexpectedly strong growth at the start of the year.

The bank said the average unemployment rate would drop from 3.8 per cent last year to 3.2 per cent this year and to three per cent in 2007.

It said the expanding global economy would boost growth of Swiss exports in 2006 by eight per cent, but it credited consumer spending as the “mainspring of the boom”.

According to Credit Suisse, the Swiss are expected to shell out 2.2 per cent more than they did last year, well above the annual average growth of 1.5 per cent of the past 20 years.

But the Swiss National Bank’s monetary policy could put a spanner in the works. Credit Suisse said the bank could be expected to raise interest rates by three-quarters of a percentage point to two per cent by the end of the year, and to 2.25 per cent in the first quarter of 2007.

IMF warning

The IMF said in its annual report that “unemployment has started to recede [and] despite rising oil prices, inflation remains under control and the current account is running a large surplus”.

Consumer price inflation is just over one per cent.

The IMF statement said the recovery presented the Swiss with an opportunity to advance reforms to further boost growth.

It added that short-term economic risks facing Switzerland appeared generally contained, and it credited the government with being “on track to eliminate its small structural deficit by 2007”.

The IMF praised the Swiss authorities for their “prudent macroeconomic management, sound monetary and fiscal policy frameworks, and flexible labour markets”.

But the Washington-based institution warned that continued growth in the medium term would only be possible if the country “addressed the fiscal pressures from an ageing population”.

It also called on the government to liberalise further “sheltered sectors, including reducing red tape and state regulations, lowering non-tariff barriers to trade, and reducing the very high levels of protection and subsidisation in the agricultural sector”.

swissinfo with agencies

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.

The IMF oversees the global financial system by monitoring exchange rates and balance of payments, and intervenes in global economic crises.

Switzerland has been a member of the World Bank and IMF since 1992.

2006 growth forecasts for economy

State Secretariat for Economic Affairs: 2%
Swiss National Bank: 1.5%
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%