Swiss economy to slip into brief recession

The Swiss economy is likely to follow other European countries into a brief recession and the Swiss National Bank will try to revive growth by cutting interest rates twice, the KOF research institute said on Monday. Swiss gross domestic product will grow by only 0.3 percent next year, after growth of 1.9 percent this year, the KOF Swiss Economic Institute said.
"You could call it a brief, technical recession around the turn of the year," KOF head Jan-Egbert Sturm told a media conference. The KOF expects GDP to fall in the fourth quarter of 2008 and the first quarter of 2009, meeting the definition of a technical recession.
The KOF had so far forecast growth of 2.0 percent for this year and 1.8 percent for next. "The forecast economic downturn can be compared with the bursting of the 'dot-com' bubble in 2001," the KOF said. "In the long run, it should be less pronounced and will be considerably shorter."
Swiss growth should recover to 1.5 percent in 2010, but overall the global economy was to grow at a more moderate pace than in the past years, the institute said. The Swiss economy is widely expected to slow further next year though most economists see growth still topping 1 percent. The main reason for the KOF's sharp forecast cut for 2009 was the much bleaker outlook for the global economy, mainly the strong downturn in the European Union, Switzerland's main trading partner.
"The fact that the decline in exported goods and tourism is coming in a phase during which the financial services industry are confronted with a significant drop in demand will also exacerbate the situation for Switzerland," the KOF said. However, consumer spending would support the Swiss economy thanks to rising real wages and high employment, the KOF said.
The SNB confirmed its forecast for economic growth of 1.5 to 2.0 percent for 2008 at its meeting on September 18 when it kept its target rate for the 3-month Swiss franc LIBOR unchanged at 2.75 percent, but added that the downturn was continuing into 2009. The KOF forecasts inflation to slow from an average of 2.6 percent this year to 1.5 percent in 2009 and 1.3 percent in 2010, providing the SNB with the leeway to cut interest rates twice over the next six months.