Bloomberg News

Swiss Economic Growth Weakens as Franc Gains Hamper Exports

September 01, 2011

(Updates with comment from economist in fourth paragraph.)

Sept. 1 (Bloomberg) -- The Swiss economy expanded in the second quarter at the weakest pace since emerging from a 2009 slump as the franc’s appreciation sparked a drop in exports and companies cut spending.

Gross domestic product rose 0.4 percent from the first quarter, when it increased 0.6 percent, the State Secretariat for Economic Affairs in Bern said today. That’s in line with the median forecast of 18 economists in a Bloomberg News survey and the worst performance since the economy returned to growth in the third quarter of 2009. Foreign sales slumped 1.3 percent from the first quarter, when they rose 3.4 percent, and investment dropped 2 percent, down from a 1.1 percent gain.

Switzerland’s economy is cooling as the franc’s 8 percent ascent against the euro this year undermines exports just as global growth weakens. Manufacturing growth slowed last month, the KOF economic barometer fell and the central bank said that the economic outlook “deteriorated substantially.”

Swiss exporters have “to digest the brutal appreciation of the franc,” Alexander Koch, an economist at UniCredit Group in Munich, wrote in an e-mailed note. “Despite showing an impressive resilience so far, the economy may undergo a strong deceleration in the second half of the year.”

Construction Slump

The franc was little changed after the report, trading at 1.1453 versus the euro at 10:37 a.m. in Zurich, up 1.2 percent on the day. It reached a record 1.0075 on Aug. 9. Versus the dollar, the franc was at 80.14 centimes.

Consumer spending rose 0.2 percent from the first quarter, when it increased 0.1 percent, today’s report showed. Construction spending slumped 2.5 percent in that period and equipment investment declined 1.5 percent. Imports slipped 1.7 percent from the first quarter, when they rose 1.8 percent.

In the 17-member euro region, Switzerland’s largest export market, growth slowed to 0.2 percent in the second quarter, its worst performance since a 2009 recession. Germany’s economic expansion weakened to 0.1 percent in the second quarter from 1.3 percent in the first as households cut spending.

Adding to signs of slowdown, the Procure.ch Purchasing Managers’ Index fell to the lowest in two years in August and retail sales growth weakened in July, two reports showed today.

Swiss Recession

The economy may struggle to gather strength in the current quarter as companies struggle with faltering global demand and the stronger franc. Holcim Ltd., the world’s second-largest cement maker, said last month that profit may not grow this year on a “flat” U.S. market. Demand for construction from European government was “subdued,” it said.

“Weakening global demand and the franc’s strength are showing their impact on the economy,” said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. “If the currency stays at its current levels, Switzerland might slip into a recession next year.”

The Swiss central bank lowered borrowing costs to zero and boosted liquidity to the money market last month to help weaken the currency. The government pledged 870 million francs ($1.1 billion) yesterday to help counter the effects of what it called the franc’s “massive overvaluation.”

The Swiss National Bank, led by Philipp Hildebrand, will hold its next monetary policy assessment on Sept. 15.

--Editors: Simone Meier, Eddie Buckle

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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