Bloomberg News

Swiss KOF at Two-Year Low Signals Deeper Slowdown: Economy

December 29, 2011

(For more on Europe’s debt crisis, see EXT4.)

Dec. 28 (Bloomberg) -- Switzerland’s forward-looking economic indicator fell to the lowest in more than two years in December, adding to signs of a deepening slowdown.

The monthly gauge, which aims to predict the economy’s direction about six months ahead, dropped to 0.01 from a revised 0.34 in November, the KOF Swiss Economic Institute in Zurich said in an e-mailed statement today. That’s the lowest reading since August 2009. Economists forecast a decline to 0.23, according to the median of 12 estimates in a Bloomberg News survey.

Switzerland’s export-led economy is floundering as Europe’s debt crisis and the franc’s strength hamper foreign sales. The government on Dec. 13 lowered its projections for 2012 growth to 0.5 percent from 0.9 percent, and the Swiss central bank this month said “the substantial appreciation of the Swiss franc over the summer is weighing heavily” on the economy.

“Economic growth on a year-on-year perspective is going to stagnate over the first months of 2012,” KOF said in its statement.

The Swiss franc gained after the release and traded at 1.2195 versus the euro at 12:04 p.m., up 0.1 percent on the day. Against the dollar, it traded at 93.27 centimes.

Swiss Haven

The Swiss National Bank on Dec. 15 left its benchmark interest rate at zero and stressed its resolve to defend the limit of 1.20 francs per euro introduced in September to fight deflation risks. The SNB will enforce the minimum exchange rate “with the utmost determination,” it said.

The currency, seen as a haven in times of turmoil, gained as much as 37 percent against the euro in the 12 months before the SNB introduced the limit, threatening exports and lowering the price of imported products.

Reports overnight showed Japan’s rebound from the March earthquake and tsunami sputtered in November as production and retail sales tumbled, deepening the nation’s return to the deflation that first took hold a decade ago.

Industrial output slumped 2.6 percent from October, more than all the forecasts in a Bloomberg News survey of 29 economists, a government report showed in Tokyo. Retail sales slid 2.1 percent. Consumer prices excluding fresh food fell 0.2 percent from a year earlier after a 0.1 percent decline the previous month.

European Stocks

European stocks nevertheless extended gains, with the benchmark Stoxx Europe 600 Index rising for a fourth day, as Italy’s borrowing costs fell at an auction of 179-day bills. U.S. index futures advanced, while Asian shares dropped.

The German state of North Rhine-Westphalia is due to publish December inflation data later today ahead of the pan- German report tomorrow. Retail sales in Sweden unexpectedly rose 0.8 percent in November from October.

“Switzerland’s economy will rebound in the second quarter of 2012,” said Ralf Wiedenmann, chief economist at Vontobel Asset Management Ltd. in Zurich, who predicts the country’s gross domestic product will expand 0.7 percent next year. “I expect the euro-area financial crisis to subside, and that will help exports.”

The economy will gather steam in the second half of next year and growth will quicken to 1.9 percent in 2013, bolstered by exports, domestic demand and construction, the government said this month. There aren’t any signs of an “economic slump like the one at the end of 2008,” after the failure of Lehman Brothers Inc., it added.

The franc cap “has given companies stability and a stable planning environment,” Marie-Gabrielle Ineichen-Fleisch, head of the State Secretariat for Economic Affairs, told Neue Zuercher Zeitung in an interview today. To return to normal, the economy would need an exchange rate of 1.35 to 1.40 francs per euro, she said.

Jona, Switzerland-based cement maker Holcim Ltd. last month said the appreciation of the Swiss franc reduced third-quarter sales and operating profit by 15 percent.

--Editors: Paul Verschuur, Matthew Brockett

To contact the reporter on this story: Klaus Wille in Zurich at

To contact the editor responsible for this story: Craig Stirling at

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