Bloomberg News

Swiss Economy Grows More Than Forecast on Consumer Spending (2)

May 30, 2013

Swiss Economy Grows More Than Forecast on Consumer Spending

While Switzerland has managed to escape an economic slump, consumer prices are still falling. Photographer: Valentin Flauraud/Bloomberg

Switzerland’s economy expanded more than forecast in the first quarter, with consumer spending helping it perform better than the neighboring euro area.

Gross domestic product rose 0.6 percent from the fourth quarter, when it advanced by a revised 0.3 percent, the State Secretariat for Economic Affairs in Bern said in a statement today. Economists predicted a rise of 0.2 quarter-on-quarter, the median of 19 estimates in a Bloomberg News survey showed.

“We expected half that growth,” said Cornelia Luchsinger, an economist at Zuercher Kantonalbank. “It’s a positive surprise.”

The Swiss National Bank (SNBN) set a cap of 1.20 per euro on the franc in 2011 to ward off deflation and a recession. Along with consumer demand, that ceiling has helped shield Switzerland from the six quarters of recession that have afflicted the euro area, the destination for nearly half its exports. Germany, the bloc’s largest economy, expanded only 0.1 percent in the first quarter.

An easing of tensions in the euro area caused the euro to rise 0.8 percent in the first quarter against the franc, which investors tend to buy when they seek safe assets. The Swiss currency was little changed at 1.2433 at 9:05 a.m. in Zurich. Against the dollar it climbed 0.3 percent at 95.94 centimes.

Falling Prices

While Switzerland has managed to escape an economic slump, consumer prices are still falling. In April, they recorded their 19th straight month of annual declines, and last week SNB President Thomas Jordan said there was no risk of inflation for the foreseeable future.

“It’s nice that we have this print, but the SNB has a mandate for price stability,” Luchsinger said. “So long as we don’t see a change in inflation these figures today won’t raise the pressure on the SNB.”

Domestic demand is the biggest driver of Swiss economic growth, accounting for about 57 percent of output last year, while net exports made up 10 percent. In the first quarter of 2013, household consumption increased 0.6 percent from the end of December and construction investment climbed 0.3 percent, according to the statement.

According to the SNB’s most recent prognosis, given in March, GDP is expected to expand between 1 percent and 1.5 percent this year. It will update that forecast at its next policy review on June 20.

A adjustment of the franc cap and negative interest rates are among steps the central bank could take to prevent a tightening of monetary conditions,Jordan said last week. The central bank stands ready to take further steps, should it deem them necessary, Jordan also said, reiterating previous comments.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

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


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