Switzerlands economy will shrink by 2.4 percent in 2009 and by a further 0.3 percent the following year, the KOF Economic Research Institute said on Thursday, slashing its previous forecast sharply. The Swiss National Bank also said that the countrys exporters in particular were suffering from the global downturn, in a bulletin prepared for its March 12 interest rate decision that largely echoed the SNBs statement.
"For the coming year, we are forecasting continuous negative quarter-on-quarter growth rates," the KOF institute said in a statement. "Positive rates can be expected again in the second semester of 2010."
In December the institute had forecast a drop of 0.5 percent for 2009 and growth of 0.6 percent in 2010. Switzerland slipped into recession in the middle of last year and the SNB now sees the economy shrinking by 2.5 to 3.0 percent in 2009, while the government forecasts a decline of 2.2 percent.
The SNB took sweeping measures to boost the economy and fight deflation on March 12, when it slashed the target for the 3-month franc LIBOR to a low of 0.25 percent, intervened to weaken the franc and announced it would buy corporate bonds. The KOF said Swiss consumer prices would fall by 0.6 percent in 2009 but would rise by 1.0 percent in 2010. The SNB said in its report talks with some 170 company representatives painted a picture of a "clear and rapid" worsening of the economic environment.
"Companies have reacted to the economic downturn by tightening their cost management," the SNB said. "The measures taken are far-reaching and also include the review of investment plans." More and more companies were also laying off staff, it said. "There is a high degree of uncertainty about the magnitude and duration of the crisis, with all the delegates expecting a difficult year to come," the SNB said. The KOF institute said that Switzerlands key financial industry would suffer further losses in view of the expected easing of the countrys prized bank secrecy.
The Swiss government allowed the transfer of some confidential bank client data to the United States last month in order to spare its largest bank UBS from criminal charges in a tax fraud probe. As G20 countries have stepped up pressure on offshore centres, Switzerland and other countries agreed earlier this month to offer more international tax co-operation, weakening strict bank secrecy laws.
"The announced relaxing of bank secrecy laws in the event of suspected tax-evasion by foreign investors will further shrink the foreign private wealth managed by Swiss banks," the KOF said. Switzerland is the worlds biggest wealth management centre and its banks manage an estimated $2.2 trillion of offshore private wealth, or one third of global wealth managed abroad.
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