Swiss Economy Grows Faster Than Euro Area’s on High Exports

Switzerland’s economy outpaced that of the neighboring euro area in the first quarter, with growth in exports and in the construction sector offsetting weaker household consumption.

Swiss gross domestic product rose 0.5 percent in the three months through March from the previous quarter, when it expanded 0.2 percent, the State Secretariat for Economic Affairs in Bern said in a statement today. That compares with a median estimate of 0.6 percent in a Bloomberg survey of 18 economists.

Shielded by a cap on the franc set up by the Swiss National Bank in September 2011, the Swiss economy has fared better than that of the euro area, its biggest trading partner, in nine of the past 10 quarters.

“You see a very strong contribution from exports, which stands in contrast to the global soft patch we saw in the U.S. and in Europe,” said Maxime Botteron, an economist at Credit Suisse Group AG in Zurich, adding that the unusually warm winter helped the construction sector. “Despite relatively strong growth, there’s no sign of an overheating -- it means for the SNB that they can continue with their policy, including the cap on the franc.”

‘Not Bad’

Today’s data showed that in the first quarter, exports of goods, excluding variables, rose 2 percent, compared with a contraction of 1.7 percent a quarter earlier. Construction increased 2. 7 percent, after 2.5 percent in the fourth. By contrast, household consumption, which has been a major support of the economy, grew just 0.1 percent, compared with 0.7 percent a quarter earlier. From a year earlier, output increased 2 percent in the first quarter.

Switzerland’s quarterly growth rate compares with German expansion of 0.8 percent during the period, while the French economy stagnated. In a sign Swiss economic momentum will probably hold steady, manufacturing output has expanded for nearly a year. Data today also showed private consumption is set to remain “robust,” with the UBS consumption indicator at its second-highest since January 2011 with an April reading of 1.72 points.

“For the coming quarters we’ll see net exports contributing to growth and as well as stable consumption,” said Alessandro Bee, an economist at Bank J Safra Sarasin AG in Zurich, adding that high immigration and low unemployment in Switzerland will keep domestic demand stable. “The situation isn’t bad.”

Franc Cap

According to the International Monetary Fund, the euro area is forecast to grow 1.2 percent this year, while Switzerland’s economy is seen expanding 2.1 percent.

Even so, Ukraine’s political crisis has helped maintain risk aversion among investors even as the euro area’s debt crisis loses in intensity, allowing the franc to climb 0.4 percent against the euro this year.

Citing extreme economic challenges, SNB President Thomas Jordan termed the currency cap his “most important” policy instrument when he addressed the central bank’s annual general meeting in Bern last month.

The SNB is expected to keep the ceiling in place at least until 2015, according to a Bloomberg News survey of economists earlier this month. Should the European Central Bank ease policy further to combat falling prices, the SNB probably will need to take steps to defend the 1.20 limit, the survey showed. The ECB could announce more stimulus as early as June 5 when policy makers meet in Frankfurt.

ECB Action

If the franc rises against the euro on ECB action, “that may prompt another round of intervention by the Swiss National Bank,” said Julien Manceaux, an economist at ING Belgium in Brussels. “It remains to be seen how strong the effects of ECB policy will be on the euro -- if the effects are strong, that could certainly push the SNB to go beyond exchange rate intervention.”

SNB policy makers have repeatedly said they won’t exclude any option to defend the cap, and the International Monetary Fund suggested it could charge commercial banks on their excess reserves to take pressure off the currency.

Switzerland’s economy also faces the fallout of a February vote to introduce quotas for European Union workers. The Swiss government plans to announce more details on immigration reform next month. SNB policy makers have said they can’t quantify the economic impact of lower immigration until details of the government’s plan are public.

“You’re in a small boat,” UBS AG Chairman Axel Weber said last week. “If you shoot holes in your boat, it’s harder to sail troubled waters.”