Swiss fear double-dip recession

The economic outlook seems gloomy for the Swiss Keystone

Fears of a double-dip recession in Switzerland have intensified, amid faltering consumer confidence and rising unemployment.

New economic data – including the announcement that the jobless rate hit three per cent in October – has cast a pall over the country’s economic outlook.

Adding to the nervousness is the fact that Swiss household debt has reached record levels, most of it involving high-interest consumer debt.

Pressure is also mounting on the Swiss National Bank to lower interest rates, following the bigger-than-expected rate cut by the United States Federal Reserve on Wednesday.

“I personally think there is a real danger [of a double-dip recession], not only because of what’s happening in Switzerland, but what’s happening elsewhere,” said Jean-Christian Lambelet, from Lausanne University.

But on Thursday the bank, along with the European Central Bank and the Bank of England, held interest rates steady.

For Swiss economic policy-makers – already facing public outrage over plans to lower the nation’s minimum guaranteed pension rates – the latest push for an interest rate cut could not have come at a worse time.

According to the State Secretariat for Economic Affairs (Seco), Switzerland’s economy is running dangerously close to sliding back into a deflationary cycle.

GDP growth in the second quarter was almost non-existent at 0.4 per cent. A spell of negative growth would wipe out hopes that the economy will recover next year.

The Central bank’s room for manoeuvre is also limited – its London Interbank rate range is between 0.25 and 1.25 per cent.

“Real danger” of inflation

Lambelet told swissinfo that faltering consumer spending “spelt trouble” for an already slow economy.

“It’s certainly in a recession now – whether it will be a double dip recession is a good question,” he said.

“Real investment – in equipment and construction – has come crashing down rather more than everyone thought,” he said.

And with inflation running at around one or two per cent per year, Lambelet fears deflation may be unavoidable.

“This is a special recession, because it [has not been induced] by the need to bring inflation under control – when it came, inflation was already very low.”

Jobless rate doubles

In October the jobless total stood at 110,197 – up 8,308 on the previous month. The unemployment rate is almost double what it was in October 2001 (1.9 per cent), and up on September, when the rate at 2.8 per cent.

Although relatively modest when compared to other developed economies, Switzerland’s current jobless rate has contributed to a growing sense of insecurity.

Seco’s quarterly Swiss consumer confidence index – released on Thursday – shows public confidence has fallen to its lowest level in almost a decade.

Consumers main concerns are job security and fears that the economy has deteriorated. The Swiss also said their financial situation had deteriorated in October.

Premium debt

Traditionally, Switzerland has managed to ride out previous recessions thanks to one of the world’s most enviable savings rates.

But according to the Zurich-based “Tages-Anzeiger” newspaper, Swiss household debt has reached record levels – a worrying development for an economy that has been kept afloat largely thanks to consumer spending.

And unlike previous debt blowouts, the current repayments’ crunch is not just about luxury items.

The paper said many households are having difficulty paying off basic living costs, including taxes, health bills and credit cards.

And unlike the average British or American citizen, the Swiss are less likely to have their debt linked to a housing mortgage. Swiss debt tends to involve higher-interest consumer credit.

swissinfo, Jacob Greber

Key facts

The Swiss economy is facing a double-dip recession – two consecutive quarters of negative growth, followed by a brief recovery and then another recession.
In October the jobless rate reached three per cent.
Consumer confidence is down and the government has warned of deflation.