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Swiss industry shows signs of recovery in May, order books expand

[ZURICH] Swiss manufacturing showed signs of recovering in May despite a strong Swiss franc, data showed on Monday, with order books perking up for the first time since the central bank abandoned a cap on the franc more than four months ago.

The Swiss Purchasing Manager's Index (PMI) for the manufacturing sector rose to a seasonally adjusted 49.4 points in May, below the 50.0 point threshold that separates expansion from contraction. The index is compiled by the Swiss SVME purchasing managers' association and Credit Suisse. "Industrial momentum appears to have only marginally slowed," the report said.

Economists in a Reuters poll had forecast contraction to slow in May to a reading of 48.4 points, from 47.9 in the previous month.

The Swiss National Bank (SNB) abandoned its cap of 1.20 francs per euro on Jan 15, exposing the export-reliant economy to a surge in the franc, which makes Swiss exports more expensive.

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Growth contracted in the first quarter as a result, the first to cover the period immediately after the cap's removal, raising the prospect of Switzerland entering recession - defined as two straight quarters of negative growth - for the first time since 2009.

However, a leading indicator pointed to an economic recovery towards the end of this year, tempering concerns that the country might slip into recession.

The PMI index tracking orders, a sign of future production, rose by 4.7 points to a reading of 51.4, suggesting that a host of measures companies have taken to fight the strong franc such as discounts from suppliers and cutting staff are taking hold.

However, the subindex for employment fell to 40.7 points, its lowest since the financial crisis.

Despite the removal of the cap, the mood among exporting firms indicates that the economy will hold up better than expected.