SECO Upgrades Swiss GDP Forecast

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The Swiss economy is expected to recover at a gradual pace next year and grow strong by 2011.

"According to the Federal Government's Expert Group on Economic Forecasts, the economic recovery will continue next year, however, in the wake of temporarily fading positive impulses from the international economic environment, it will remain moderate," Switzerland's State Secretariat for Economic Affairs said Tuesday, while unveiling its latest economic forecasts. "The potential medium term repercussions of the international financial crisis as well as the timing of the exit strategies of central banks from quantitative easing represent a major risk for the global economy in the coming years."

Experts now see a 1.6% decline in gross domestic product this year, slightly less than the 1.7% fall forecast in September. Meanwhile, the growth forecast for 2010 was hiked to 0.7% from 0.4%. The Swiss economy, which emerged from recession in the third quarter, is expected to grow 2% in 2011.

Inflation is forecast to remain in negative territory this year, with prices falling an annual 0.5%, a tad weaker than the 0.4% fall predicted in September. In 2010, prices are seen rising 0.8% and then to climb 0.7% in 2011.

The near-term outlook for the Swiss labor market is bleak, according to the SECO forecast. The unemployment rate is forecast at 3.7% for this year, jumping to 4.9% in 2010, where it is expected to stay in 2011. Previously, the jobless rate was seen at 3.8% for 2009 and 5.2% for next year. Employment is seen declining 0.2% this year and 0.4% in 2010, but rise 0.5% in 2011.

"In the face of bleak labour market and income perspectives, expansion tendencies in private consumption, so far rather vibrant, are expected to slow down in 2010," SECO said. Consumer spending is forecast to rise 1.3% this year, 0.9% next year and 1.5% in 2011. Economists at UBS bank expect private consumption to make only a modest contribution next year, but to add to economic growth again in 2011. Public sector spending is seen increasing 1.5% in 2009, 0.4% in 2010 and then decline by 0.1% in 2011.

Investment in the construction sector is expected to level off by 2011. Growth in investment is seen at 0.5% for 2009 and 1.5% for 2010. In 2011, construction investment is forecast to remain flat. Capital spending is expected to decline in the first two years. This year, spending on machinery and equipment is forecast to drop 4%, to be followed by a 1% decline next year. In 2011, capital spending is seen rising a robut 4%.

SECO forecasts showed exports and imports remaining subdued this year, but rebounding strongly in 2011. A 9.7% decline in seen in exports for 2009, while it is expected to grow 3.7% next year and 5.2% in 2011. Imports are forecast to fall 5.5% this year, only to recover with a 4.2% growth in 2010 and 4.8% in 2011.

Last week, the Swiss National Bank left its key interest rate unchanged for a third time at 0.25% to support the economy, which is on the road to recovery. In addition, the central bank decided to stop purchasing bonds from private sector borrowers. The central bank said the economic recovery is clearly underway, but remains fragile. The SNB forecast real GDP growth of between 0.5% and 1% in 2010 after contracting by around 1.5% this year. In the third quarter, Switzerland's economy grew 0.3% sequentially, ending contractions that started in the third quarter of the previous year.

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