Switzerland may escape a recession caused by the strong franc, after data showed the economy unexpectedly grew in the fourth quarter and leading indicators painted a rosier picture, easing pressure on the central bank to do more to shield the economy.
Gross domestic product grew 0.1 per cent in the fourth quarter compared to the previous quarter, the State Secretariat for Economics (SECO) said on Thursday.
It grew 1.3 per cent from a year earlier. Analysts in a poll had expected a contraction of 0.2 per cent on the quarter and growth of 0.9 per cent on the year.
“The economy may not be as bad off as many pessimists had predicted,” said Swissquote analyst Peter Rosenstreich. “Despite the strong franc there is solid demand for Swiss products and in aggregate growth is bumping along.”
Since the onset of the global financial crisis, investors seeking a safe haven have been buying the franc, prompting the Swiss National Bank (SNB) to cap its value at 1.20 per euro last September, citing the risk of deflation and recession.
A recession is defined as two consecutive quarters of negative quarterly growth. Manufacturing sector (PMI) data for February also beat expectations, data showed on Thursday, indicating the economy may bottoming out. Manufacturing activity fell only very slightly last month after shrinking for five consecutive months.
The data followed February’s KOF economic barometer, which rose for the first time in nearly a year.[ID:nL5E8DT1HM]
“This is a slightly favorable surprise and confirms that Switzerland is experiencing an economic turnaround, albeit not at a particularly dynamic rate,” said Daniel Hartmann, senior economist Bantleon Bank.
But with the franc still nearly a third stronger than when Lehman Brothers collapsed in 2008, SNB interim Chairman Thomas Jordan has warned repeatedly that the central bank stands ready to take further steps to restrain the currency if necessary.
Trade unions have called on the SNB to shift the cap towards 1.40 per euro. But economists said the fourth-quarter growth data would not provide them with further ammunition.
“We don’t expect the cap to be shifted,” said Maxime Botteron, economist at Credit Suisse. “Deflationary risks hardly exist any more. We expect positive inflation prints on the month ahead. So the central bank won’t introduce fresh measures.”
The franc’s strength has hit companies ranging from bank UBS to cement maker Holcim. Firms in the export and the tourism sectors are particularly feeling the pinch.
The SNB forecasts economic growth of 0.5 per cent this year, down from a 1.9 per cent expansion in 2011. The euro zone debt crisis has hurt the Swiss economy as the currency bloc buys more than half of Switzerland’s exports.
Nevertheless, exports of goods grew 2.8 per cent in the fourth quarter from a year earlier. Trade in chemicals and related products -such as drugs produced by Novartis and Roche -contributed strongly to that rise, the economics secretariat said.
Exports of precision instruments, watches and jewellery, which are particularly popular in emerging markets like China and Hong Kong, showed positive developments, the secretariat said. Despite the strong franc, which makes imports cheaper, imports of goods were 0.4 per cent softer, the data showed.