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The chemicals and pharmaceuticals category provided the strongest contribution to growth.
The chemicals and pharmaceuticals category provided the strongest contribution to growth.

Swiss Growth Gains Momentum

Swiss Growth Gains Momentum

Swiss economic momentum accelerated in the second quarter, exceeding that of the eurozone and hitting its fastest pace since 2014.

Gross domestic product rose 0.6% in the three months through June, after gaining a revised 0.3% in the prior quarter, the state secretariat for economic affairs in Bern said on Tuesday. That jump, helped by government consumption and foreign trade, beats the 0.4% increase forecast by economists in a Bloomberg survey.

A year after suffering an exchange-rate shock, the export-oriented Swiss economy appears to be finding its footing again. Demand in countries such as Germany is recovering and local companies are finding ways to cut costs and improve productivity. Unemployment is low by European standards and the strong franc, which the central bank says is overvalued, is buttressing domestic consumption by lowering the cost of imports.

“We have strength in certain sectors like pharmaceuticals—this has also showed up in our export data recently—but still struggling in areas like machinery,” Oliver Adler, head of economic research at Credit Suisse, told Bloomberg television in an interview. “But overall the big shock of 2015 is sort of waning and that is showing up in these GDP numbers.”

According to the SECO, contributions to growth came from foreign trade and government consumption, while household spending stagnated and investment in construction and equipment declined. Concerning exports of goods, the chemicals and pharmaceuticals category “provided the strongest contribution to growth,” the SECO said.

Companies in the machine, electrical and metals sectors were particularly hit by a surge in the Swiss currency that followed the central bank’s decision to scrap its minimum exchange rate in early 2015. The sector shed 9,200 jobs in the wake of that policy switch, but employment is now stabilizing and exports “started to turn around in the second quarter” due to better European and US demand, industry body Swissmem said last week.

 SNB Decision

The Swiss National Bank, whose quarterly policy announcement is scheduled for Sept. 15, is using a deposit rate of minus 0.75% coupled with a pledge to intervene in foreign-exchange markets to prevent the franc from appreciating. It admitted to buying up foreign currency to stabilize the franc in the wake of the Brexit vote.

The franc stood at 1.09 per euro in Zurich. Katja Mueller of Landesbank Baden-Wuerttemberg last month put the purchasing power parity level of the exchange rate at 1.36 francs per euro.

 

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