Swiss Economic Growth Remains Strong In Q2

Sep 4, 2007 - The Swiss economy remained on track to achieve robust expansion in the second quarter, official data indicated Tuesday. Higher consumer spending, investment in software and equipment as well as a strong trade balance drove growth in the second quarter.

A report from the Berne-based State Secretariat for Economic Affairs or SECO showed that the Gross Domestic Product or GDP rose 0.7% sequentially in real terms in the second quarter, logging the same pace as in the previous quarter. The quarterly growth matched economists' expectations. Initially, the first-quarter sequential growth was estimated at 0.8%.

On an annual basis, the mountain economy grew 2.8% in the second quarter, slightly accelerating from a revised 2.7% witnessed in the first quarter. The first-quarter annual growth underwent strong upward revision from the 2.4% initially recorded. Economists had expected the growth rate to hold steady at 2.4% in the second quarter.

Household spending eased to 0.5% in the second quarter from the 0.7% seen in the first quarter. Significant rise in spending was witnessed in healthcare, furniture, communications and financial and insurance services.

The Swiss investment bank UBS said recently that its Consumption Indicator is showing that Swiss consumer spending is still very buoyant. UBS noted that outlook for consumer spending is upbeat amid the job market recovery. The bank expects real private consumption growth of 2.5% in 2007, following an increase of 1.9% in 2006.

Investment grew 2.6% quarter-on-quarter led by a 7.6% enhancement in outlay in equipment and software. Meanwhile, investment in the construction sector contracted 3.7%.

In the second quarter, export growth moderated to 0.5% from the 2.5% jump seen in the previous quarter. The slow down was blamed on a 0.5% decline in overall exports including valuables. Excluding valuables, overall exports rose 0.9%. Services exports registered a robust growth of 3.1%.

Imports climbed 0.9% in the second quarter, with both goods as well as services imports rising 0.9%.

Government data showed that Swiss trade surplus was 1.57 billion francs in July, slightly down from the 1.65 billion francs recorded in the prior month.

On the production side, the sector dominated by industry revealed a value addition of 1.2% during the quarter. Hospitality industry, transport and communications as well as the financial market services sector had a 1.2% rise in value addition during the second quarter.

Meanwhile, the value added in the construction sector dropped 1.5%. Declines were also seen in the public services and agricultural sectors.

The GDP Deflator, a measure of inflationary pressures, rose 1% year-over-year in the second quarter, matching the pace seen in the previous three months.

In 2006, the Swiss economy grew 3.2%, much stronger than the 2.4% growth recorded in 2005. In June, the SECO raised its GDP growth forecast for 2007 to 2.3% from 2%. The SECO also revised up the 2008 growth projection to 1.9% from 1.7%.

The Swiss bank Credit Suisse forecasts economic growth at 2.2% for 2007 and is expected to slow to 1.9% in 2008. The bank expects jobless rate to remain steady at 2.8% in both the years. The UBS sees growth of 2.6% in 2007 and 2.3% in 2008.

Elsewhere, the Swiss National Bank or SNB has voiced concerns over the impact of the recent turmoil in financial markets, following the U.S. subprime rout. The central bank sees uncertainty in the growth momentum in the Swiss economy during the second half of the year.

The central bank is set to decide on interest rates in September. Latest data showed that annual inflation slowed to 0.4% in August from the 0.7% seen in the previous month. Slowing inflation coupled with the market turbulence is likely to be reason enough for the central bank to stay pat on interest in September. In June, the SNB raised its key interest rate to 2.5% from 2.25%.