Swiss Economy Defies Strong Franc With Unexpected Growth

Switzerland’s economy unexpectedly grew in the fourth quarter as a surge in consumer spending helped the economy battle the headwind of a strong currency.

Gross domestic product rose 0.2 percent from the third quarter, when it advanced 0.6 percent, the State Secretariat for Economic Affairs in Bern said today. Economists forecast stagnation, the median of 19 estimates in a Bloomberg News survey showed. Consumer spending increased 1.1 percent.

Private consumption has helped Switzerland grow in recent years and emerge from the financial crisis less bruised than many other countries in Europe. Adding to signs the economy is gaining pace, manufacturing output expanded for the first time in 17 months in January and the ZEW index of investor confidence rose for the fifth month in February.

“It’s a positive sign in that other industrial countries went downhill toward year’s end,” said Alexander Koch, an economist at UniCredit SpA (UCG) in Munich. “If you look at the indicators the positive momentum should continue. We expect a slight acceleration in the course of the year.”

Investors buy the franc at times when they want particularly safe assets. The franc is still 24 percent stronger than when Lehman Brothers Holdings Inc. collapsed in September 2008.

Franc Cap

The Swiss National Bank, which set a cap of 1.20 per euro on the franc in September 2011 to aid the economy, expects GDP to expand as much as 1.5 percent this year. GDP advanced 1 percent last year, down from 1.9 percent in 2011, today’s data show.

In the fourth quarter, private spending on health care increased, and the category that includes expenditure on insurance and financial services also reported a higher than average rise, the data today showed. Government spending also expanded. From a year earlier, the economy grew 1.4 percent after expanding by a revised 1.2 percent in the previous three months.

Swiss exporters have had a tough time in recent years with foreign demand damped by the strong franc and the crisis in the euro area. About half of Switzerland’s exports are destined for the euro area, which fell back into recession last year. Net exports of goods and services contracted in the fourth quarter.

While Switzerland has managed to avoid a recession, SNB President Thomas Jordan said in an interview with Handelszeitung yesterday that an exit of the cap was still far off.

The franc has weakened 1.1 percent against the euro since the start of the year due to an easing of the region’s debt crisis, though upwards pressure on the currency could return, given that the 17-member reagion’s debt woes remained unresolved, Jordan said in a speech last week.

The SNB holds its next quarterly monetary assessment on March 14, when it will issue new growth and inflation forecasts.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

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

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