Researchers paint gloomy picture for economy

Keystone

Two Swiss economic research groups say there are signals that Switzerland is heading towards a dramatic economic slowdown.

The KOF Swiss Economic Institute in Zurich said on Wednesday the ailing state of the international economy and the financial crisis were “profoundly impacting” the country, with the economy continuing “to contract sharply”.

KOF noted that exports, a key economic factor for Switzerland, declined by 14 per cent in the first quarter on the basis of adjustments taking into account the number of working days. Imports were down 11 per cent.

Continuing insecurity among the most important Swiss trading partners meant a recovery in foreign trade could not be expected to materialise in the near term, KOF said in its May bulletin.

It noted its latest surveys showed output in all economic sectors either rose only marginally or declined.

Economic researchers at the Créa Institute of Applied Macroeconomics at Lausanne University are now forecasting that the economy will shrink 3.2 per cent this year and 0.8 per cent in 2010.

They added that they did not expect a “timid recovery” until 2011.

Threat of deflation

The unemployment rate will rise significantly, according to Créa, and will breach five per cent by the end of 2009. This has not happened since 1997.

In a related development, a member of the governing board of the Swiss National Bank said the SNB would continue to fight the threat of deflation using all means, including currency interventions, as risks to the economy prevail.

Thomas Jordan said that steps taken by the bank in March, including a key interest rate reduction, had had the desired effect.

In a speech due to be delivered later in the day, he added that the SNB could not sit back despite first signs of economic stabilisation because Switzerland was facing the worst recession since 1975.

“Downward risks prevailing”

“From a Swiss perspective, the downward risks are still prevailing at the moment,” Jordan said, citing the danger of protracted recession, lasting deflation or a massive tightening of credit conditions.

“Against this background, decisive monetary policy action is essential.”

Jordan repeated the SNB’s forecast that the economy would contract by up to three per cent this year, slightly less pessimistic than the Créa researchers.

“In 2010 we expect a slight recovery,” he said, adding that inflation rates should stay close to zero in 2010 and 2011.

swissinfo.ch with agencies

Economic forecasts for 2009

State Secretariat for Economic Affairs (Seco): –2.2 % (March 2009)

Swiss National Bank: –2.5 to –3% (March 2009)

UBS Wealth Management: –8% (March 2009)

UBS Investment Bank: –2.4% (April 2009)

Credit Suisse: –2.0% (March 2009)

KOF: –2.4% (March 2009)

BAK Basel Economics: –2.1% (March 2009)

Créa: –3.2% (May 2009)

Business Economists’ Consensus: –1.4% (March 2009)

IMF: –3.0% (April 2009)

OECD: –0.2 (November 2008)