Switzerland’s economy will probably eke out meager growth in the third quarter, ending a recession induced by the central bank’s decision to allow the franc to float freely again and lessening the likelihood of further policy easing.
Gross domestic product, which probably shrank 0.2 percent in each of the first two quarters, will increase 0.1 percent in the three months through September, according to the median estimate in Bloomberg’s monthly survey.
While the resumption of growth means the Swiss National Bank’s January policy switch only produced a short-lived recession, falling consumer prices may keep President Thomas Jordan on alert. With a deposit rate of minus 0.75 percent not having succeeded in taming the overvalued franc, and the central bank still intervening to try to limit the currency’s advance, economists are wondering if further policy steps lie in store.
“The SNB expects positive growth in the second half of the year,” said Maxime Botteron, economist at Credit Suisse Group AG in Zurich. “If this forecast doesn’t materialize and if deflation risks increase, the SNB could cut interest rates further.”
The franc has risen more than 15 percent since the 1.20-per-euro currency cap was scrapped, weighing on the nation’s exports and pushing down import prices. The franc traded at 1.04861 per euro at 12:01 p.m. in Zurich on Wednesday.
The SNB dropped the three-year-old policy because defending it would have proved too costly relative to the potential economic benefit. It cut its economic forecasts after the move and now sees growth of “just under” 1 percent this year, with the rate of inflation at minus 1 percent in 2015 and at minus 0.4 percent in 2016.
Economists in the Bloomberg survey share the SNB’s 2015 consumer-price forecast. For GDP they predict growth of 0.7 percent this year, improving to 1.2 percent in 2016.
The Greek debt crisis has kept up pressure on the franc, which investors flock to in times of uncertainty, with SNB’s Jordan uncharacteristically admitting on June 29 to having waged interventions to stabilize it. The European Central Bank’s quantitative easing program has also compressed the interest rate differential between Switzerland and the euro area, a further factor in the franc’s enduring strength.
In a sign economic momentum seems to have accelerated, a closely-watched gauge of manufacturing activity picked up in June, and the ZEW sentiment index has improved from its February post cap-exit low.
“We believe that the economy can cope with the current level of the exchange rate and will improve over the course of the second half of the year such that no further loosening of monetary policy will be needed,” said Karsten Junius, chief economist at Bank J Safra Sarasin Ltd in Zurich.
According to a separate survey, the SNB has another 50 basis points of leeway left for cuts in its deposit rate. The median estimate among 17 economists is minus 1.25 percent.
“If massive fresh currency market turbulences -- be it due to Greek events or otherwise -- were to lead to the Swiss franc-euro exchange rate dropping anew below the parity line in a sustained manner, then the SNB would cut its policy rates once again,” said Timo Klein, a senior economist at IHS Economics in Frankfurt.