The Swiss economic recovery is set to gather pace in the coming months, an unexpectedly strong jump in the country's leading KOF growth barometer showed, as exports recover and consumer spending holds up. The Swiss franc initially rose on the buoyant leading indicator as it boosted expectations that the Swiss National Bank may take back its unconventional measures - including currency interventions - earlier than anticipated.
However, later market talk of a possible SNB intervention knocked off half a percent off the franc, which traded at around 1.5130 per euro by 1259 GMT. The KOF barometer rose to 1.45 in October from a downwardly revised 0.77 in the previous month, the KOF Swiss Economic Institute said on Friday, beating even the most optimistic analyst's forecast in a Reuters poll.
The indicator has posted record rises over the past months, soaring quickly back into growth territory from the all-time low hit in April. "The numbers are extremely positive, though they raise some questions," Sarasin analyst Alessandro Bee said, adding that news from the real economy still had to match the strong bounce in leading indicators and surveys.
"We will probably raise our growth forecast for Switzerland for 2010 above 2 percent," Bee said. Most economists - including the SNB - have so far pencilled in a much more modest recovery of the Swiss economy, which is seen shrinking by 1.5 to 2.0 percent 2009, posting its worst decline since the mid-1970s. Signs have been mounting recently that Switzerland has moved out of the deep recession, which it plunged into in mid-2008 as the global crisis hit its exporters and banks.
The KOF said sub-indicators showed an improvement for exporters and manufacturers, while the banking industry and the construction sector were stagnating. The indicator for consumption was little changed. Sarasin analyst Bee said the central bank would want to wait for confirmation from the real economy before changing its policy course.
Interest rate futures showed that markets were pricing in more rate hikes after the KOF data, though the first tightening was still not seen before June 2010. The SNB has been cautious despite recent strong data and kept its loose monetary policy because of concerns about the sustainability of the global recovery.
While the need for its anti-deflation fight is fading with every set of strong data from the economy, economists do not expect a quick return of inflation either as unemployment numbers are still rising and capacity utilisation is low. A UBS salary survey showed that nominal wages should rise by only 0.8 percent next year after an increase of some 2.2 percent in 2009, which resulted in a real gain in purchasing power by 2.6 percent as consumer prices are falling.
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