Swiss economy avoids recession despite strong franc

The Swiss economy has kept its head above water despite the strong franc Keystone

Switzerland’s economy has defied expectations by recording a slight growth in the second quarter, thus avoiding a recession, according to official statistics. But exporters, retailers and the tourism industry remain under extreme pressure due to the strong franc.

Economic output, or gross domestic product (GDP), rose by 0.2% in the second quarter compared to the first three months of the year, the State Secretariat for Economic Affairs (SECO) said on Friday. Many economists had been predicting a slight fall in GDP.

This follows a 0.2% contraction in the first three months of the year. Two successive quarters of shrinking economic output would have signaled a technical recession.

The franc strengthened sharply against the euro following a January 15, 2015 decision by the Swiss National Bank to abandon its policy of defending an exchange rate with the euro of no lower than CHF1.20. Despite stabilising, the franc has traded in a band of roughly CHF1.04 to CHF1.09 against the euro since the end of January.

SECO said in a press release that consumer spending and government investment had propped up the economy in the second quarter. And although exports have shrunk in the year to date, they staged a slight recovery in the second quarter, whilst imports have been dropping at a faster rate.

Year-on-year GDP growth was 1.2% in the second quarter growth of 2015, according to SECO.

However, the Swiss economy still remains in a perilous position and has come to a “screeching halt”, SECO chief economist Eric Scheidegger told the public news agency SDA. SECO revised its full year GDP growth forecast in June down from 0.9% to 0.8%.

Earlier this month, the Swissmem lobby group for the electrical engineering, precision tools and machine building industries said that turnover for its 1,100 members had fallen 7.1% in the first half of 2015.

The retail industry estimates that it lost CHF13 billion ($13.6 billion) in lost sales last year as Swiss shoppers piled over the borders to pick up cheaper goods in the eurozone.