Swiss roll out surprise Q2 growth

A pizza truck in Zurich. Helping to feed the 0.2 per cent growth in the second quarter was the economy's strong resilience in digesting the franc's appreciation.
A pizza truck in Zurich. Helping to feed the 0.2 per cent growth in the second quarter was the economy's strong resilience in digesting the franc's appreciation.PHOTO: EUROPEAN PRESSPHOTO AGENCY

Country dodges recession; exporters weather pressure from strong franc

ZURICH • Switzerland's economy unexpectedly grew in the second quarter, skirting a recession as the country's exporters weathered pressure from a strong franc better than some had expected.

The economy grew by 0.2 per cent from the previous quarter, the State Secretariat for Economic Affairs (Seco) said yesterday, topping the most optimistic forecast in a Reuters poll of 12 analysts.

The poll consensus was for the US$690 billion (S$967 billion) Swiss economy to have shrunk 0.1 per cent, which would have marked the first back-to-back quarterly contractions - equating to a recession - in six years.

Imports fell more than exports while consumer spending and investments in machinery and construction rose. Exports in the watch, jewellery and pharmaceutical industries made positive contributions, Seco said.

"The economy is displaying strong resilience in digesting the strong franc appreciation," said Mr Janwillem Acket, chief economist at Julius Baer.

The revival is not likely to be very strong. The ZEW investor confidence indicator, which aims to predict economic developments six months ahead, has improved from the four-year low touched in February, but is still well off levels seen in 2013.

Switzerland's currency soared after the Swiss National Bank (SNB) removed a cap of 1.20 against the euro in mid-January.

The cap had been in place since September 2011, largely to protect the export-reliant economy, and the currency's subsequent gains led economists and the SNB to slash growth forecasts.

The franc edged up to 1.0875 per euro after the data.

In a bid to dissuade investors from holding francs, the SNB has cut its deposit rate to a record low of minus 0.75 per cent and has since repeatedly pledged currency interventions.

That stance is not likely to change any time soon, said SNB president Thomas Jordan in a newspaper interview last week. The central bank's next rate decision is on Sept 17. "Our monetary policy is taking the current difficult situation into account," Mr Jordan told UnternehmerZeitung.

Economists said the numbers did not mean the Swiss economy was now in the clear. "The dive in imports could be a sign that production is sinking," Mr Acket said, pointing to the possibility that manufacturers might have imported fewer supplies.

"So that may mean we could have a very challenged situation."

Mr Daniel Hartmann, senior economist at Bantleon, said the data represented a "technical reaction" caused mainly by the counterbalance in foreign trade. "We expect GDP growth of 0.9 per cent for the full year and of 1 per cent for 2016," Mr Hartmann wrote in a note.

Momentum in coming months could get a boost from a fall in the price of oil and a weaker franc - which has depreciated against the euro since late June.

Still, the revival is not likely to be very strong. The ZEW investor confidence indicator, which aims to predict economic developments six months ahead, has improved from the four-year low touched in February, but is still well off levels seen in 2013.

In a sign that joblessness could increase, the number of people participating in the official reduced-work programme known as Kurzarbeit - under which businesses can cut hours in return for unemployment office funds - more than doubled between January and May.

There is an upper limit on the length of time a company can participate, meaning that when the maximum is reached, jobs could be eliminated if business has not improved. The government sees the unemployment rate creeping up to 3.5 per cent next year, from 3.3 per cent this year.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 29, 2015, with the headline 'Swiss roll out surprise Q2 growth'. Print Edition | Subscribe