Switzerland raises 2012 GDP forecast but warns of worsening EU outlook

12 June 2012 17:33  [Source: ICIS news]

LONDON (ICIS)--Switzerland’s economy is expected to grow by 1.4% this year, up from a previous forecast of 0.8%, the country’s state secretariat for the economy (SECO) said in an update on Tuesday.

The secretariat said that the increase in the target was prompted primarily by better-than-expected domestic economic activity and a relatively resilient export business so far this year – despite a strong Swiss franc and the economic recession in many EU countries.

However, the upward revision in the GDP growth target “cannot detract from the fact that the economic environment in Europe has recently deteriorated further,” SECO said.

Switzerland’s export industry will not be able to escape the difficult eurozone environment, it said.

The turbulent events on currency markets since 2010 already forced many Swiss exporters to reduce their sales prices - to the detriment of margins - in order to remain internationally competitive despite the strength of the Swiss franc.

The situation in Switzerland’s industrial sector remains problematical and the latest deterioration in Europe poses a serious risk to the further development, SECO said.

“Preventing an escalation of the sovereign debt crisis in the euro region is the key prerequisite for a continuation of the positive economic development,” it said.

However, SECO said that its economic experts are seeing no early end to the recession, in particular for the countries in southern Europe which are suffering both from falling domestic consumer demand as well as from the tough fiscal policy consolidation measures.

Even the robust German economy would be unable to fully escape the difficult conditions, it said.

“It must therefore be assumed that although Germany will remain the engine driving growth in the euro region, there will be a slowdown in German economic activity,” it said.

Meanwhile, the Swiss ministry views economic prospects for Asia and the US as better than those for the EU, even though these regions are not immune to the problems in the euro region due to trading and finance links, the secretariat said.

The US economy is showing a moderate pace of recovery and the process of reducing domestic consumer debt is making progress, SECO said. However, the US has taken no clear action to date to consolidate government finances, it added.

As for China, SECO said that the country’s economic slowdown is desirable in view of signs of overheating, such as sharp rises in real estate prices and a strong rise in lending.

“It remains to be seen how much the Chinese economy slows and whether the planned switch to more private consumer-led growth will succeed,” it added.

In September last year, Switzerland’s central bank pegged the Swiss franc to the euro as the eurozone debt crisis drove up the value of the franc. The currency peg has been welcomed by Swiss chemicals and pharmaceuticals producers.

Paul Hodges studies key influences shaping the chemical industry in his Chemicals and the Economy Blog

By: Stefan Baumgarten
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