The global credit turmoil is set to dampen economic growth in Switzerland, where the financial sector has been hit by bank losses related to the US subprime mortgage crisis, the International Monetary Fund said on Thursday.
In its annual review of the Swiss economy, the IMF said gross domestic product growth would likely ease to 1.4 percent in 2008, from 3.1 percent last year, as slower global growth takes its toll on exports and financial sector inflows.
"Along with the slowdown in US activity and the prospect of slower growth in Europe, these developments are projected to decelerate Swiss growth in the period ahead," the IMF said. It also said Swiss inflation had picked up due to higher global food and fuel prices. For 2008, the IMF said Swiss inflation should average 2 percent and ease to 1.4 percent next year.
Meanwhile, the IMF said domestic lending in Switzerland has remained surprisingly steady despite deleveraging at big banks due to credit market turbulence. It commended the Swiss government for its "vigorous response" to the market turmoil, but also urged further action to strengthen the financial sector system through closer monitoring, additional capital at banks, more liquidity, and greater disclosure.
The IMF said Swiss monetary policy had adequately balanced the risks to inflation and economic growth. While some IMF directors said Swiss monetary stance was "appropriate," others suggested there may be scope for further easing.
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