Switzerland to slip into recession in coming months

Switzerland will slip into a short recession in the coming months due to harsh international economic conditions but the worst will be over by 2009, experts at the Swiss economic institute KOF said Monday.
"In our current forecast, the quarterly real GDP growth rate will show slightly negative values for two consecutive quarters (the fourth quarter of 2008 and first of 2009), which would fulfil an often used criterion for a recession," said the institute in a statement.
The overall growth rate for the year would reach 1.9 percent, while in 2009, the growth rate is expected to climb only by 0.3 percent. "The nadir will be reached in the coming winter. However, that will be followed by a rapid recovery, producing a real GDP growth of 1.5 per cent in 2010," said the institute. Switzerland has in the past three years shown exceptional economic growth, thanks partly to its financial sector.
But it is also particularly exposed to a slowdown in the sector. Its two biggest banks, UBS and Credit Suisse, were forced to write down substantial amounts of assets on the subprime crisis. Bank Pictet's chief economist Jean-Pierre Beguelin agreed with KOF's forecast, saying that it was "possible" that a recession was on the way.
"We are expecting a rather difficult period in Switzerland, with a possibility of a recession at the beginning of next year," he said. However, he also added that a slowdown was "not completely bad in the long term" as the economy had been growing at an overheated pace in 2006 and 2007.
Julius Baer chief economist Janwillem Ackett meanwhile, was more bullish on the situation. He described KOF's forecasts as "very pessimistic, even if such a development was possible." "We don't see a (recession) in Switzerland," he said, adding that there was a "good chance" that GDP growth for 2009 could yet hit 1.0 percent. He also noted that the Swiss central bank had not hinted that it would lower its interest rates, as it did during the last recession to stimulate growth.
Earlier this month, the Swiss National Bank left its interest rate unchanged for the fourth consecutive time at 2.25-3.25 percent. It also kept its GDP growth forecast at 1.5 to 2.0 percent for 2008.