Swiss Economy Fails to Grow for First Time Since 2004

By Joshua Gallu

Dec. 4 (Bloomberg) -- Switzerland’s economy stagnated in the third quarter, ending a four-year streak of growth and reinforcing the case for the central bank to reduce interest rates.

Gross domestic product, the value of all goods and services, was unchanged from the second quarter, when it increased a revised 0.3 percent, the State Secretariat for Economic Affairs in Bern said today. That’s the worst performance since the third quarter of 2004 and in line with the median of 15 forecasts in a Bloomberg News survey. From a year earlier, the economy grew 1.6 percent.

Switzerland’s economy may weaken further in the coming months as recessions in Europe and the U.S. hurt exports and financial- market turmoil erodes banks’ earnings. The central bank has already cut 175 basis points from its benchmark rate since early October and says the economy may contract next year.

“Everything depends on the financial-market crisis right now,” said Claude Maurer, an economist at Credit Suisse in Zurich. “We’re seeing the impact on exports and investments. The longer the crisis continues, the heavier the impact will be.”

Switzerland has held up better than the rest of Europe as near-full employment boosts spending and exports of products like Swatch watches and pharmaceuticals offset a drop in investment.

‘Astonishing’

With Europe’s economy contracting, it is “astonishing” that the Swiss economy didn’t shrink, Swiss National Bank President Jean-Pierre Roth said yesterday.

Consumption rose 0.4 percent from the second quarter and exports gained 1.2 percent, today’s release showed. Investment shrank by 1.4 percent, led by a decline in equipment spending.

“Capital investments respond very quickly to a worsening economic outlook, but private consumption won’t plummet overnight because of the strong labor market,” Maurer said. “Switzerland also benefits from having diversified exports, both in terms of products and regions.”

Still, Swiss manufacturing contracted at the fastest pace since at least 1995 last month and leading indicators dropped to the lowest level in more than five years. Unemployment rose for a second month in October as companies ranging from chemical makers to banks trimmed workforces to cope with stalling growth.

Job Cuts

Credit Suisse Group AG, Switzerland’s second-largest bank, said today that it will cut 5,300 jobs, or 11 percent of its workforce, after losses of about 3 billion francs ($2.5 billion) in the first two months of this quarter.

The SNB plans to maintain a “resolutely expansionary” monetary policy to counter stalling growth, Roth said yesterday. The central bank will “use all means at its disposal to limit as far as possible the consequences of the international financial crisis on the economy.” The central bank is scheduled to hold its next policy meeting Dec. 11 in Zurich.

Investors predict the SNB may lower borrowing costs further by the end of the year, futures trading shows. The implied rate on the 3-month Liffe contract was unchanged at 0.93 percent at 8:37 a.m. in Zurich. The SNB’s benchmark currently stands at 1 percent.

The franc, which has gained almost 8 percent against the euro this year, was little changed 1.5337 at 9:06 a.m. Against the dollar, the Swiss currency fell to 1.2107 from 1.2094 yesterday.

Coordinated Action

Central banks from London to Washington have lowered their benchmark rates as a freeze in lending between banks and falling commodity prices switched policy makers’ emphasis from price growth to the state of the economy. The International Monetary Fund last month predicted advanced economies will contract simultaneously in 2009 for the first time since World War II.

In the euro region, destination for more than half of Switzerland’s exports, manufacturing and service industries contracted at the fastest pace in at least a decade last month. The European Central Bank will probably cut its key rate by half a percentage point today.

Clariant AG, the world’s biggest maker of chemicals, is cutting 2,200 jobs, or 10 percent of its workforce, through 2009 as it seeks to boost profitability. The Muttenz-based company said on Nov. 4 that it will need to cut costs further as slumping automotive and construction industries and slowing growth in China damp sales.

Switzerland’s economy will probably contract in the fourth quarter and through the first half of next year before starting to recover in late 2009, the Zurich-based industry group Economiesuisse said yesterday.

To contact the reporter on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net