Swiss Government Sees Increased Growth Risks in 2009

By Simone Meier

Oct. 2 (Bloomberg) -- The Swiss government said it sees ``significantly'' higher risks to economic growth next year as the credit crunch weighs on a global expansion.

Swiss gross domestic product will rise 1.9 percent this year and 1.3 percent in 2009, the Bern-based State Secretariat for Economic Affairs said today in a statement, maintaining its forecasts from June. Risks to the 2009 outlook have ``significantly increased,'' the state secretariat said.

Switzerland's economy is cooling as financial-market turmoil hurts earnings at banks including UBS AG and Credit Suisse Group and a U.S.-led global slowdown weighs on export demand. The Swiss economy may slip into a recession early next year, the KOF economic research institute said on Sept. 29.

``We see a considerable economic slowdown, but not a recession,'' said Fabian Heller, an economist at Credit Suisse Group in Zurich. Still, the government's 2009 forecast ``seems a little bit on the optimistic side overall.''

The Swiss economy may expand just 0.3 percent next year after growing 1.9 percent in 2008, Zurich-based KOF said. The Swiss National Bank last month maintained its growth forecast for this year of between 1.5 percent and 2 percent, when keeping its key rate at 2.75 percent. It didn't give a 2009 projection.

`No Real Recession'

Aymo Brunetti, who heads the Economy Ministry's economic division, said in a telephone interview that while the government still expects a ``moderate recovery'' in the second half of 2009, risks to the forecast are ``clearly pointing downward.'' Growth could be ``considerably'' less than 1 percent next year if the European slowdown deepens, he said.

The European Commission last month cut its growth forecast for the economy of the 15 euro nations to 1.3 percent from 1.7 percent and predicted a recession in Germany, Switzerland's largest trading partner. The Brussels-based commission said it may also trim its 2009 forecast next month.

``Uncertainty regarding the economic outlook has increased,'' Brunetti said. ``We don't expect the economy to slip into a real recession, however.''

With the financial-services industry accounting for about 16 percent of GDP, the Swiss economy is more vulnerable to the global credit crunch sparked by the U.S. housing slump. The SNB along with the world's largest central banks has injected billions into the financial system to facilitate lending.

Largest Losses

UBS, the European bank with the largest losses from the global credit crisis, today posted its first quarterly profit in more than a year after cutting holdings of mortgage-related securities. Josef Ackermann, chief executive officer of German rival Deutsche Bank AG, said on Sept. 30 that it's important that ``trust returns to markets.''

In Switzerland, a slowdown is already deepening. Manufacturing contracted for the first time in more than three years in September. A gauge of consumption dropped in August and leading economic indicators declined to a five-year low.

Swiss exports may rise 3.4 percent this year and 2.3 percent in 2009, the state secretariat said. Spending on equipment may increase 3 percent in 2008 before stalling in 2009. Consumer spending may weaken to 1.6 percent in 2009 from 1.9 percent.

The Swiss government's forecasts are based on estimates of the euro region expanding 1.4 percent this year and next. The German economy is seen growing 1.6 percent in 2008 and 1.4 percent in 2009 and the U.S. 1.6 percent and 1.3 percent.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net.