(Updates with Swiss franc in fourth paragraph.)
June 14 (Bloomberg) -- The Swiss government lowered its forecast for 2012 economic growth and said a further appreciation of the franc poses risks to the outlook.
Swiss gross domestic product will rise 1.5 percent next year instead of the 1.9 percent projected in March, the State Secretariat for Economic Affairs in Bern said in a faxed statement today. For 2011, the government left its growth projection unchanged at 2.1 percent.
“Economic growth in Switzerland has been solid so far,” the state secretariat said. “However, the currency appreciation, which already represented a burden on Swiss exports the last few months, has jumped even higher over the last few weeks. With the recent added strength to the franc, new risks have emerged.”
The franc weakened against the euro after the release and traded at 1.2083 at 8:39 a.m. in Zurich after reaching a record 1.2004 yesterday. It was at 83.74 centimes versus the dollar.
The Swiss currency has appreciated 15 percent against the euro over the past year, as investors sought a haven from the region’s fiscal crisis. Standard & Poor’s said yesterday that Greece is “increasingly likely” to face a debt restructuring and the first sovereign default in the euro area’s history.
With exports accounting for about half of GDP, the Swiss economy has been vulnerable to currency swings. Cie. Financiere Richemont AG, the Geneva-based maker of Jaeger-LeCoultre watches, on May 19 reported full-year profit that missed analyst estimates partly because of a stronger franc.
“It’s difficult to assess how long this phase of strong appreciation will continue,” the state secretariat said. “When firms are forced to reduce their margin, it may be assumed that such a process cannot go on for long without repercussions, in the medium term on investments, wages and employment. Should the upward pressure on the franc persist, significant negative effects on export volumes” can be expected.
Exports may rise 4.6 percent in 2011 and 3 percent in 2012, the state secretariat said. It had previously forecast exports to increase 4.1 percent and 4.7 percent this year and next, respectively. Investment in equipment and software may rise 3 percent in 2012 instead of 3.5 percent, it said.
Switzerland’s economy has performed well this year “due to the strong support of domestic demand,” the state secretariat said. Household spending may rise 1.3 percent in 2011 and 1.7 percent in 2012, it forecast.
While the franc’s appreciation is clouding export prospects, it’s also shielding the country from price pressures by making imports cheaper. Inflation will probably remain “significantly” below 1 percent this year and next, according to the state secretariat.
The Swiss central bank, led by Philipp Hildebrand, may keep its benchmark interest rate at 0.25 percent when policy makers meet on June 16, according to a Bloomberg News survey. The Zurich-based Swiss National Bank will also publish its latest economic forecasts.
--Editors: Simone Meier, Jennifer M. Freedman
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