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Switzerland set to avoid recession: agency

Switzerland is to dodge recession, a government body said on Tuesday as it lowered its 2012 growth forecast to 1.0 percent, but warned the global slowdown will cause a rise in unemployment.

Published: 18 September 2012 16:59 CEST

Switzerland set to avoid recession: agency

Photopress/Yoshiko Kusano

"The international economic slowdown has also reached Switzerland," the State Secretariat for Economic Affairs (SECO) said in a statement, adding that "dampened economic activity" was expected in coming months.

After a "relatively good" first quarter, SECO said, growth had weakened in the second quarter.

Overall for 2012, the federal department's experts forecast growth of 1.0 percent, compared to the 1.4 percent outlook in June.

It also lowered slightly its position on growth in 2013 from 1.5 percent to 1.4 percent, "contingent upon there being a recovery in the global economy."

But there was no expectation of a "marked" recession, SECO said, thanks to the robust domestic economy which benefited from low interest rates, fallingv consumer prices and high immigration.

In addition, Switzerland's exchange rate mechanism — put in place by the country's central bank to prevent the franc appreciating against the euro beyond 1.20 francs to the euro — had also made "an important contribution" towards helping the "under pressure" export sector, SECO added.

The weakening of the Swiss economy impacted slightly on the labour market in 2012 with the seasonally adjusted unemployment rate rising from 2.8 percent to 2.9 percent in August, SECO's economists said.

Unemployment is likely to rise for the rest of the year "in view of the modest expectations for economic activity" before stablizing in 2013, SECO added.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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