A glimmer of hope

Just as they can count on the precision of Swiss watches to make sure that they are never late, investors can similarly rely on its economy to dodge a recession. The Swiss economy presents a picture of robust health, even though experts have cautioned that it is not immune to the Eurozone debt crisis, which has crippled countries around it.
For 2013, while the rest of Western Europe has forecast stagnant or growth below 1 per cent growth, Switzerland’s sound financial structural advantages will be responsible for economic growth of 1.4 per cent, according to the Federal Government’s Expert Group.
This performance would be contingent upon a recovery in the global economy, it said in its autumn report, adding that the GDP would grow at 1 per cent in 2012, down from 1.9 per cent posted last year.

Stable economy
“The Group does not foresee a marked recession in Switzerland, thanks to the robust domestic economy and the exchange rate floor against the euro, the latter that created stability for the export industry. The latest decisions taken by the ECB have reduced the risks of a further escalation in the sovereign debt crisis within the euro region. However, these risks still remain,” the State Secretariat for Economic Affairs (SECO) said in its September report.
With the Eurozone purchasing half of all Swiss exports, the strength of the former is essential for the health of the economy, which, although one of the world’s most stable, is dependent on the exports of financial services and high-tech manufactured goods.
Switzerland has already felt the impact of the turmoil in Europe. The country was hit by an unexpected economic contraction of 0.1 per cent in the second quarter. The slowdown was driven by exports, which delivered a negative contribution to GDP growth.

Paying dividends
This growth was weaker than expected, and teamed with the continued impact of the global and European economic downturn, will be responsible for sub-one per cent growth in 2012, according to the KOF institute, one of the country’s leading think tanks. The organisation also maintains that the pace of growth will accelerate next year, predicting growth of 1.3 per cent in 2013, down from its previous forecast of 1.7 per cent.
The banking sector is of the same view. Also, in an autumn forecast economists at Credit Suisse judged 2013 growth at 1.5 per cent. Low interest rates, high levels of immigration and a strong labour market are expected to contribute to this expansion, they said. “The Swiss National Bank will provide vital support on the exchange rate front. However, uncertainty and nervousness will remain constant companions next year too, and not all sectors of the economy will be able to benefit to the same extent from the slight, but bumpy upward trend,” they said.
Economic performance next year will be hit by weak exports and slowing construction activity, while employment is also likely to remain weak. The bleak numbers justify the Swiss National Bank’s policy of maintaining the cap at 1.20 per euro which it imposed on the Swiss franc against the euro a year ago to ward off deflation and a possible recession.
Even though many still see the safe-haven currency as too high, that policy has paid dividends, as Federal Customs Office data showed. Exports rose 4.4 per cent year-on-year in August to 15.54 billion franc, accelerating from a growth of 0.8 per  cent in July.
“It is astonishing that exports continue to keep up so well,” Sarasin economist Jan Poser told Reuters, “In view of the strong franc, one would expect worse.”
The fixed exchange rate will help Switzerland function against a weakened Europe in 2013. The world economic environment continues to weaken, having reached such previously strong economies as Germany and China.
In a statement issued this year, the Swiss National Bank drew attention to numerous downside risks. It said, “The global economy remains vulnerable. Growth prospects are being dampened by the Eurozone crisis on the one hand, and the uncertainty surrounding forthcoming fiscal policy decisions in the US, on the other. The situation on the financial markets is also fragile. In addition, the continuing strong momentum on Swiss residential mortgage and real estate markets poses risks for financial stability over the medium term.”
Within Switzerland, growth is expected to come from resilient fundamentals. The country suffered its last recession at the end of 2008. It largely avoided the savage credit crunch that wreaked chaos on much of the industrialised world.

Caution urged
Switzerland’s national debt remains low and its budget deficit is expected to be 0.6 per cent in both 2012 and 2013. At $80,000, its GDP per capita is nearly twice the EU average and workers in Zurich earn more than counterparts anywhere else, even in terms of purchasing power.Next year, it will also be helped by low interest rates, high levels of immigration and a continued robust labour market. Its 3 per cent unemployment rate is one of the lowest worldwide.
However, some experts urge caution. UBS Chairman Axel Weber, although upbeat, said Europe will continue to affect Switzerland’s performance. “Realistically, the outlook for Swiss economic growth is at best modest, but still better than most of its European neighbours.”
— With inputs from agencies