Swiss Economy Shrinks by Most in Four Years, Enters a Recession

By Joshua Gallu

March 3 (Bloomberg) -- Switzerland’s economy contracted by the most since 2004 in the fourth quarter, entering a recession 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 fourth quarter was bad and the first quarter will be very bad as well,” said Bernard Lambert, an economist at Pictet & Cie in Geneva. “The central bank will probably keep rates at almost zero at least for the rest of the year. I don’t expect any recovery before the fourth quarter.”

Economists had forecast 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.

Central Bank 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. Together with the government, the central bank also bailed out UBS AG, the country’s biggest bank, in October.

With rates already near zero, the central bank 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.

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.

Manufacturers are suffering as foreign demand weakens. The euro area economy, Switzerland’s biggest export market, shrank the most in at least 13 years in the fourth quarter, according to figures published on Feb. 13. At the same time, job cuts have pushed Swiss unemployment to the highest in almost two years, undermining household spending.

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.

“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.”

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