Swiss Government Sees Slower Growth With Greek Crisis Risks

The Swiss economy will grow at a slower pace after output suffered its biggest quarterly contraction since the financial crisis and the country adapts to the strong franc.

Output will expand 0.8 percent in 2015 and 1.6 percent next year, the State Secretariat for Economic Affairs in Bern said on Tuesday. The previous prediction, issued in March, was for growth of 0.9 percent and 1.8 percent respectively. Consumer prices are set to decline 1 percent this year, before rising 0.3 percent in 2016.

Consumer prices are falling and the economy faces the prospect of its first recession in six years after the central bank scrapped its currency cap in January. That’s led the franc to appreciate 15 percent this year, a blow to exporters. Mounting concerns about a breakup of the euro area could cause further upward pressure on the franc versus the euro.

“The Swiss economy continues to be vulnerable against further fluctuations of the exchange rate,” the Swiss government’s group of experts said in a statement accompanying its quarterly forecast. “The chances of success for Greece of finding a solution to the problem of financing debt remain highly uncertain.”

In case of an “extreme solution” for Greece, “the risk and uncertainty relating to the short-term progression of the exchange rate of the Swiss franc to the euro must be taken seriously,” it said.

Recession Threat

Eric Scheidegger, who heads SECO’s economic policy division, said in an interview with Bloomberg last week he thought the economy would avoid a “deep” slump even if the second quarter isn’t very strong.

Economists define a recession as two consecutive quarters of contraction. Swiss output declined 0.2 percent in the first three months of the year, due to flagging exports, the worst quarterly economic performance since 2009.

The Swiss National Bank, whose deposit rate is already at a record low of minus 0.75 percent, announces its interest-rate decision at 9:30 a.m. in Bern on Thursday.

While no policy change is forecast, SNB President Thomas Jordan will probably warn he’s ready to do more if the outlook worsens as he considers the threats from the crisis in Greece and the potential breakup of the euro area.

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