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Despite revision, UBS expects Swiss economy to see satisfactory growth
After pausing for breath over the winter months, the Swiss economy started growing again from the second quarter. Nonetheless, the high oil price and globally flatter economic trend will leave their mark. Therefore, UBS economists are revising their growth forecasts for Switzerland slightly downward.
With the Swiss economy having made little or no progress over the winter months, it started growing again from the middle of 2005. In the second quarter of 2005, gross domestic product (GDP) grew by 0.3% in real terms on the preceding quarter. Even before these data were published, the Swiss Federal Statistical Office had already revised GDP growth upward from 1.7% to 2.1% for full-year 2004. This also resulted in a completely new picture for the quarterly performance figures. Thus, for example, the first quarter saw its growth on the preceding quarter corrected from 0.0% to 0.2%. This confirmed the earlier view of UBS economists that the Swiss economy was gradually picking up again after a bad patch over the winter. Growth is being supported by ongoing positive external trade contributions, persistently strong house building and solid, though hardly thrilling, private consumption.
The sharp rise in the price of oil is having a generally damping effect. This is the main feature of the international economic environment and is leading to a gradual slowdown of the US economy as well as to a merely restrained growth in Europe. Only in Asia, and particularly in Japan, an improved economic situation can be expected. For Switzerland, this scenario, combined with the upward-revised growth in 2004 (base effect), produces slightly lower forecasts for real GDP growth of 1.3% (previously 1.6%) in 2005 and 1.6% (previously 1.8%) in 2006.
So far, the higher oil price has still not really been reflected in higher inflation rates, since rising fuel prices have been largely offset by lower prices, above all for those of telecommunications services and clothing. Because of deregulation or the market entry of foreign retailers, further price cuts will also continue to keep Swiss inflation in check. In addition, UBS economists expect the oil price to decline slightly in the coming year, which is why average inflation, at 0.6%, will be lower in 2006 than previously assumed.
Real GDP growth (% y-o-y)
Old forecast (July 2005)
Old forecast (July 2005)
Zurich / Basel, 22 September 2005
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