Swiss Economy Enters First Recession in Six Years

By Joshua Gallu

March 3 (Bloomberg) -- Switzerland’s economy contracted by the most since 2004 in the fourth quarter, entering its first recession in six years as a global slowdown strangled exports and companies slashed spending.

Gross domestic product fell 0.3 percent from the third quarter, when it shrank a revised 0.1 percent, the State Secretariat for Economic Affairs in Bern said today. That’s the worst performance since the third quarter of 2004. Exports fell 8.1 percent and investment declined 3.1 percent.

Switzerland’s economic slump may deepen as falling global demand prompts companies to cut production and jobs and financial market turmoil erodes banks’ earnings. The Swiss National Bank has cut its benchmark interest rate by 225 basis points to 0.5 percent since early October in a bid to limit the fallout from the crisis.

“The decline in exports shows that Switzerland has been hit quite hard,” said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. “The SNB will certainly start taking more unconventional measures like buying corporate or government bonds or intervening in currency markets.”

Watch Sales

Foreign demand is weakening as Switzerland’s biggest export markets shrink. The euro area economy contracted the most in at least 13 years in the fourth quarter, according to figures published on Feb. 13. Swatch AG, the world’s largest watchmaker, has said sales will probably decline in the first three or four months this year.

“In 2009, the Swiss economy will shrink along with the economy in the rest of Europe,” SNB President Jean-Pierre Roth said late yesterday. “Investments and trade will continue to decline and unemployment will increase.”

Imports fell 5.8 percent in the fourth quarter from the third, while household spending rose 0.1 percent, according to today’s report.

“Consumption has so far held up well considering the current environment but may crack as unemployment rises,” Poser said. “Overall, Switzerland is holding up better than the rest of Europe and other export-oriented economies like Germany and Japan.”

Germany’s economy shrank by 2.1 percent in the fourth quarter and Japan’s contracted at the fastest pace since the 1974 oil shock as sales of cars and machines plummeted.

SNB Action

The SNB has joined central banks worldwide in flooding money markets with cash in an effort to jolt frozen credit markets back to life. With rates already near zero, it may buy government or corporate bonds, offer cheaper funds for longer terms, or intervene directly in currency markets to counter the slump, SNB Vice-President Philipp Hildebrand said Jan. 22.

Together with the government, the central bank also bailed out UBS AG, the country’s biggest bank, in October. UBS on Feb. 10 reported a record 19.7 billion-franc ($16.8 billion) loss for 2008 and said it will cut 2,000 more investment bank jobs. Credit Suisse Group AG reported a record fourth-quarter loss a day later.

Georg Fischer AG, Europe’s largest maker of iron castings for cars, last month reported a 72 percent decline in 2008 profit and said it will move some production to China as it budgets for a “deep and long” slump. Chemical company Clariant AG is also cutting jobs, and unemployment reached the highest in almost two years in January.

Economists had forecast that fourth-quarter GDP would shrink by 0.8 percent, according to the median of 15 forecasts in a Bloomberg News survey. From a year earlier, the economy shrank 0.6 percent, today’s report showed, after growing 1.4 percent in the previous three months.

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