Private consumption fuels Swiss growth
Zurich
THE Swiss economy returned to growth at the end of last year as it fought off the impact of a currency shock that had threatened to push the country into a recession.
Gross domestic product (GDP) increased 0.4 per cent in the three months till December, after contracting 0.1 per cent in the prior quarter, the State Secretariat for Economic Affairs (SECO) in Bern said on Wednesday. Economists in a Bloomberg survey had forecast a growth rate of 0.1 per cent for the fourth quarter.
The economy lost momentum last year after the Swiss National Bank (SNB) abolished its currency cap, sending the franc surging and hitting exports to the euro area. The SNB had introduced a cap on the value of the Swiss franc against the euro because of the euro currency crisis and the political crisis within the eurozone, which has seen the Swiss franc become regarded as a safe haven currency again, as it had been traditionally.
The cap was later removed in anticipation of the European Central Bank's (ECB) quantitative easing amid fears that the move may contribute to further, massive appreciation pressures on the Swiss currency.
To worsen the Swiss problem, the unemployment rate touched a five-year high, a potential blow to an economy that has relied on domestic consumption in recent years.
"Growth was supported by consumption expenditure from private households and the public sector," the SECO said in a statement. "Investments in construction remained more or less stable, while those in equipment declined."
Adding to the headwinds has been a slowdown in China and other emerging markets, on which some Swiss exporters had pinned their hopes in a bid to offset weak demand in Europe. Exports of pricey Swiss watches, popular in China and Hong Kong, experienced their first annual drop since 2009 last year.
As for the machine, electrical and metals companies, industry body Swissmem termed 2015 an "annus horribilis" and reported a 14 per cent slump in new orders. Still, it said that the sector would probably experience a medium-term recovery "if exchange rates and business trends do not worsen any further".
"The franc is strong and the fact that the Chinese economy and the emerging markets are slowing down doesn't help Swiss exporters," said Ipek Ozkardeskaya, an analyst at London Capital Group. China "has an impact on the Swiss economy - more so than the eurozone or Britain", she added.
Household consumption and that of non-profit organisations reported growth of 0.1 per cent in the fourth quarter compared with the third, the SECO data showed. Exports of goods excluding non-monetary gold, valuables and merchanting rose by 2.9 per cent. Third-quarter GDP had initially been reported as stagnating.
With the franc cap gone, the SNB has relied on negative interest rates and a pledge to intervene to keep the currency in check. The franc has weakened to an average of almost 1.10 per euro so far this year - versus 1.079 in the second half of 2015.
The issue for the SNB is the ECB, which is forecast to increase stimulus again this month. That could weaken the single currency versus the franc and push Swiss central bank president Thomas Jordan to loosen policy in response.
The SNB's deposit rate is already at a record low of minus 0.75 per cent, yet SNB officials have said that there is potentially still room for a cut. BLOOMBERG
