Swiss Economy Expands More Than Forecast on Consumption

Switzerland’s economy expanded more than forecast in the third quarter, outpacing neighboring Germany thanks to consumption by households and the public sector.

Gross domestic product increased 0.6 percent in the three months through end September, after a revised 0.3 percent in the second quarter, the State Secretariat for Economic Affairs in Bern said in a statement today. That’s more than the 0.3 percent median of 17 estimates in a Bloomberg News survey.

Thanks in part to the Swiss National Bank’s currency cap, Switzerland has managed to sustain its economic growth in the face of the malaise in the euro area, the destination for about half of its exports. The European Central Bank meets tomorrow to discuss whether more needs to be done to revive the 18-nation currency bloc. That could raise pressure on the SNB’s minimum exchange rate of 1.20 per euro, set three years ago.

Today’s data is “astoundingly good,” said Roland Klaeger, economist at Raiffeisen Schweiz in Zurich. Still, “for the SNB it doesn’t really make a difference -- the ECB is really determining the tempo.”

Swiss household consumption increased 0.6 percent in the quarter, with construction investment climbing 0.8 percent and general government consumption rising 0.9 percent. Exports of goods increased by 2.8 percent, with the strongest positive contribution “by far” coming from the chemical and pharmaceutical sector.

Russia Headwinds

“Switzerland’s domestic economy continues to look good, with the jobs market very robust,” said Christian Lips, an economist at Norddeutsche Landesbank in Hanover, Germany. “Real wage growth should support private consumption.”

With political tension in Russia adding to headwinds, GDP in Germany, Switzerland’s biggest trading partner, rose just 0.1 percent in the third quarter. French output increased 0.3 percent, and Italy is stuck in its longest-running recession on record.

The SNB currently forecasts growth of “just below” 1.5 percent this year, cutting its prediction from 2 percent in September due to the lackluster performance of euro-area and emerging-market economies. An updated forecast is due next week when SNB officials meet in Bern for their quarterly monetary policy assessment.

While Switzerland hasn’t joined the European Union’s sanctions on Russia, imposed over the eastern European nation’s involvement in the Ukraine crisis, it has taken steps to prevent their circumvention. That includes banning some capital-market transactions and exports of goods for the oil and gas sector that could be used for military purposes.

ECB Easing

Swiss companies don’t do as much business with Russia as their German counterparts. As a destination for Swiss exports, Russia ranked behind countries including China, Japan, the U.S., Canada, and major European nations in the first nine months of this year.

To revive growth in the euro-area, ECB policy makers are considering supplementing their negative deposit rate and asset purchases. Draghi has explicitly mentioned buying sovereign bonds, a suggestion that has met with opposition among German policy makers.

The SNB has pledged to take measures -- even a charge on sight deposits -- if needed to reinforce its ceiling on the franc, should pressure on the currency intensify.

“Even if the ECB were to engage into more aggressive quantitative easing, we do not think that the SNB would preemptively introduce a negative deposit rate on banks’ excess reserve,” Maxime Botteron, an economist at Credit Suisse Group AG, said earlier this week via e-mail. “We believe that the trigger for additional measures would be renewed substantial capital inflows, similar to those experienced in 2012.”

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