Switzerland Joins Global Suffering as Europe Debt Crisis Ripples: Economy

Switzerland’s economic growth will almost grind to a halt next year as the franc’s appreciation and floundering global demand hurt exports, according to the KOF Economic Institute.

The economy will expand 0.2 percent next year and 1.9 percent in 2013, the Zurich-based institute said in a statement today, cutting previous projections. Swiss National Bank President Philipp Hildebrand will meet with the government today after the SNB yesterday maintained its cap of 1.20 francs per euro to fight deflation and help exporters.

Hildebrand said he can’t rule out an escalation of Europe’s debt turmoil, which is threatening the outlook in countries from India to the U.K. The Bank of England cut its growth forecasts last month, while India’s central bank refrained from raising interest rates today for the first time in eight meetings, warning of an “uncertain global environment.”

“The euro-area problems are dragging down everyone and the SNB can’t escape that,” Martin Gueth, an economist at Landesbank Baden-Wuerttemberg in Stuttgart, said by phone. “They are having the same problem as everyone else; trying to protect themselves from the fallout in Europe.”

The franc was little changed against the euro at 1.226 as of 4:14 p.m. in Zurich. It rose 1.1 percent yesterday after the SNB announcement. The euro rose 0.1 percent against the dollar.

Ireland Shrinks

Euro-area exports fell 1.9 percent in October, led by declines in Germany and Spain, data today showed. Standard & Poor’s said that failure by European leaders to resolve the debt crisis “could lead to a more pronounced economic downturn.” It also said that net exporting euro nations Netherlands, Germany, Belgium, Austria, and Finland face a risk of a bigger contraction than net importers from “deteriorating external demand.”

European car sales fell the most in five months in November, the Brussels-based European Automobile Manufacturers Association said today. Ireland’s economy shrank 1.9 percent in the third quarter, the most in more than two years, according to a separate report.

The Reserve Bank of India left the repurchase rate at 8.5 percent as inflation cools and the fallout from Europe’s debt crisis threatens growth. The decision was predicted by all 14 analysts in a Bloomberg News survey.

“Growth is clearly decelerating,” the central bank said. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”

U.S. Hopes

As Europe struggles, the U.S. is showing signs of strengthening heading into 2012, with jobless-benefit applications falling last week to the lowest in three years. Manufacturing accelerated in December, according to regional reports from the Federal Reserve Banks of New York and Philadelphia. The Stoxx Europe 600 Index gained 0.1 percent today, while the Standard & Poor’s 500 Index (SPX) rose 1.1 percent.

“If there were no euro-zone problem, we would be pretty upbeat on the prospects for the U.S.,” said James Knightley, an economist at ING Group in London. “The problem is that we cannot be, and we are concerned that a euro-zone recession will crimp demand.”

In Zurich yesterday, the SNB forecast Swiss economic growth of 0.5 percent in 2012 and Hildebrand said “the situation for a big part of the economy remains difficult.”

The KOF’s new forecasts compared with September projections for expansion of 1.5 percent and 2.5 percent in the next two years. The institute also cut its forecast for 2012 export growth to 0.8 percent from 2.3 percent.

The export-led economy is suffering as the franc’s appreciation threatens foreign sales. The government lowered its growth projections this week, saying that the currency “curbs Swiss companies’ international competitiveness.”

“The Swiss economy will be developing at a snail’s pace in the coming year,” KOF said. The weaker global development and the franc’s strength “will dent the economy.”

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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