Forex News – Switzerland cuts growth forecast

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Switzerland’s growth forecast was released today much lower than was expected. The Swiss economy is forecast to grow by only 0.5 percent next year versus a previous 0.9 percent.

The State Secretariat for Economics (SECO) which complied the data cited reasons of a worsening European economy. However the organization does not predict a huge long lasting downturn though a lot depends on the situation in the euro zone and the strength of the Swiss franc.

“Assuming that a further escalation of the debt crisis in the euro zone can be avoided, the economic weakness in Switzerland should be limited and of relative short duration,” SECO said in a statement after releasing the report today.

On September 6 the Swiss National Bank capped the safe-haven franc at 1.20 per euro citing deflation and recession risks. The SNB holds its next policy review on Thursday, and some analysts have speculated the SNB could announce a shift in the cap to weaken the franc further as signs mount that the economy is losing steam.

Some believe that the Swiss government may even consider introducing negative interest rates on foreign bank deposits. However some say that this is more likely aimed at talking down the value of the safe-haven Swiss franc than a signal it is about to act.

SECO is the Swiss federal government’s source of expertise for all core issues relating to economic policy and their forecasts are well respected by market participants.

This report forecasts the major GDP components such as consumption and investment, together with key indicators including employment and inflation.

The Swiss franc weakened against the US dollar and most major counterparts including the British pound and Australian dollar.