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Exports lift Swiss economy

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ZURICH, Switzerland (Reuters) -- The Swiss economy awoke from a double-dip recession in the third quarter, posting growth for the first time in a year, as an upturn in foreign demand was leant support by fresh signs of life in the domestic sector.

The economy grew by 1.0 percent in the third quarter compared with the previous quarter, the Swiss government said on Thursday, helped by a 5.2 percent leap in exports -- the first such growth since late 2002 as the global economy perked up.

A weaker Swiss franc reanimated overseas trade while capital investment increased for the first time in two-and-a-half years, raising hopes the domestic sector could be taking up the slack.

However, economists remained cautious about the prospects for the Swiss economy given concerns over the sustainability of global growth and the outlook for major trading partners.

"We don't expect a too dynamic development from Germany next year and since it is their largest trading partner this will be a drag on growth,'' Credit Suisse economist Thomas Trauth said.

Switzerland's top central banker has also sounded a note of caution earlier this week, saying that the prospects for Swiss growth were pleasing but modest while the OECD said there were still risks to a Swiss recovery.

A spokesman for the Swiss National Bank said on Thursday the GDP figures were in line with the central bank's expectations.

"There is still a danger of the Swiss franc strengthening again especially if the SNB were to hike too early so we expect the SNB to come later in the hiking cycle probably after the Fed has started to hike,'' Trauth said.

The franc was little changed after the GDP numbers and was last trading at 1.5472/82 against 1.5469/74 late on Wednesday.

Further growth

While the government and the national bank still see the Swiss economy contracting over 2003 as a whole, the economy is set to grow further in the fourth quarter and over next year.

"We are sticking to our forecast of 1.5 percent next year,'' Aymo Brunetti, chief economist at the State Secretariat for Economic Affairs (SECO), told Reuters.

However, the conditions for this were that the euro zone returns to solid growth and that the Swiss franc exchange rate did not increase substantially. Brunetti added that the unemployment rate was also set to keep rising into next year.

The SECO said third-quarter gross domestic product showed a year-on-year fall of 0.6 percent, in line with expectations.

Dominated by capital goods makers, the Swiss economy was hit hard as foreign firms turned off the spending taps and reined in investments. In addition, rising unemployment dampened consumer sentiment and retail sales which weakened the domestic sector.

After a short-lived recovery in early 2002, Switzerland slipped back into recession late last year with weak foreign demand compounded by an export-crippling rise in the franc.

As the economy stuttered, the SNB slashed its key interest target band in March in order to ward off further appreciation of the safe-haven currency, which would rob the competitive edge from Switzerland's hard-hit exporters.

The year-on-year figure for the previous quarter was unrevised at minus 1.0 percent while the quarterly annualized figure for the previous quarter was revised up slightly to minus 0.7 from minus 1.2 percent.

Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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