The Swiss economy shrank sharply in the first quarter as exports fell further, posting its worst quarter in decades and entrenching expectations the Swiss central bank will stick to its loose monetary policy.
Swiss gross domestic product declined by 0.8 per cent in the first three months of the year from the previous quarter, the State Secretariat for Economic Affairs said today, the worst quarterly drop since the end of 1992.
The year-on-year drop was 2.4 per cent, the sharpest contraction since the first quarter of 1976.
Switzerland slipped into recession last summer and the Swiss National Bank forecasts an economic contraction of up to 3 per cent in 2009, which would be the worst decline in over 30 years, after overall growth of 1.6 per cent in 2008.
But recession has hit key Swiss trading partners like Germany much harder so far, with German GDP slumping 3.8 per cent on the quarter in the first three months of 2009.
The Swiss first-quarter release showed that exports dropped by 5.4 per cent on the quarter, coming on top of a 8.7 per cent fall in the final quarter of last year.
Government spending rose by 1.4 per cent on the quarter and private consumption also ticked up slightly, underscoring the resilience of Swiss consumers.
While consumer spending is expected to weaken in the coming months as more and more firms axe jobs in response to the recession, first signs of stabilisation have appeared in the manufacturing sector.
“Survey data for the second quarter suggests an easing in the GDP contraction rate,” 4Cast analyst Saara Tuuli said.
“But the risks to growth remain heavily weighted to the downside and continued deflation risks suggest loose SNB policy for a prolonged period of time,” she added.
The SNB has taken drastic steps to fight deflation. The central bank has slashed its target for the 3-month Swiss franc LIBOR to a record low of 0.25 per cent, intervened to stem a rise in the franc and bought corporate bonds to keep spreads down.
Reuters