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UBS expects strong growth for the Swiss economy

Zurich / Basel | | Media Releases Switzerland

The Swiss economy is currently in excellent shape. Leading indicators for the coming quarters point to sustained strong momentum. UBS is therefore raising the growth forecast for 2007 to 2.6% and for 2008 to 2.3%.

The Swiss economy continued its surge during the first three months of the year. Real GDP, when extrapolated for the full year, grew by 3.2%. This was the sharpest rise since the 3rd quarter of 2005 and is well above the long-term average. Economic activity is not only robust but also broadly based, which inspires confidence. Most economic indicators point to sustained positive momentum. Recovery in the labour market, for example, is in full swing and should continue to lift consumer sentiment in the coming months. The resulting rise in employment and the expected increases in real wages are having a positive impact on disposable household income. UBS is therefore confident that private consumption will continue to support the economy. Equipment spending should increase sharply in the next few quarters, given the high level of capacity utilization in industry as well as healthy orders and profits. Foreign trade is also expected to have a positive impact due to sustained global economic growth and the improved competitiveness of the Swiss economy following the weakening of the Swiss franc. Overall, UBS economists expect real GDP growth of 2.6% this year (previously 1.8%) and 2.3% in 2008 (previously 2.0%).

The medium-term prospects for low inflation rates remain intact, despite the strong economic momentum and the weakness of the franc versus the euro. This expectation is supported by structural factors such as intensifying competition in the Swiss domestic market and the further opening of the labour market to EU citizens. Overall, UBS expects consumer prices to rise by 0.4% in 2007 and 0.8% in 2008.

Given the strong domestic growth, the Swiss National Bank should continue to pursue its policy of gradually normalizing monetary policy. UBS is expecting two additional interest rate hikes of 25 basis points each in September and December. This would bring the middle of the three-month Libor target range to 3.0% by the end of 2007.

Contact:

Daniel Kalt

Head of Swiss Economic Research

Tel. +41-44-234 25 60

Felix Brill

Economic & Swiss Research

Tel. +41-44-234 35 54

UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch