Swiss economy growth hit by eurozone crisis in Q3

5 years ago - Published in Breaking views

Switzerland’s economy unexpectedly shrank last quarter, signaling that weakness in the eurozone economy has spread to countries outside the currency zone that still depend on it for exports.

Swiss gross domestic product slid 0.2% on a quarterly basis, the economics ministry said, putting the year-on-year growth rate at 2.4%. Economists had expected a slight rise in GDP from the prior quarter and a 2.7% annual growth rate. Economists had forecast 0.4% growth.

Both the industrial and service sectors contributed to the negative quarterly result, the SECO said.

“The strong, continuous growth phase enjoyed by the Swiss economy for one and a half years was suddenly interrupted,” the report said. “Switzerland is thus following the significant economic downturn seen at the same time in other European countries, particularly Germany.”

The eurozone economy grew at an annualized rate of 0.7% last quarter, its slowest rate since early 2013. Germany’s GDP shrank 0.8% annualized, its first drop in over three years. Most of Switzerland’s exports go to Europe.

Compared to the same period a year ago, the GDP rose 2.4% in the third quarter following 3.5% growth in the second quarter. Economists were looking for a 2.9% increase.

Goods exports “also contracted substantially,” the economics ministry said.

A rebound in exports last month suggests that trade should help lift growth this quarter. Switzerland’s trade surplus was 2.6 billion Swiss francs ($2.6 billion) in October, double the previous month’s level.

“October’s foreign trade figures are already indicating a swift recovery, ” the economics ministry said.

At the Swiss National Bank, the latest surprise figures will probably reinforce the view that it’s not yet time to move away from their negative interest rates.

“I think the export element is temporary,” said Credit Suisse economist Maxime Botteron. Nevertheless, for the SNB the weak third-quarter is “definitely something they can mention in order to justify keeping policy expansive.”

After previously clocking six quarters of expansion, Switzerland was forecast as recently as September to record its best growth in years in 2018, helped by stronger global demand and a weakening of the franc against the euro.