UPDATE 1-Swiss manufacturing shrinks for 7th month in Oct -PMI

Thu Nov 1, 2012 6:23am EDT

* Swiss manufacturing hit by weak euro zone demand

* Slight improvement in outlook, PMI authors say (Adds background, analyst comment, retail sales data)

By Catherine Bosley and Caroline Copley

ZURICH, Nov 1 (Reuters) - Swiss manufacturing shrank for a seventh month in a row in October as demand continued to be hit by the euro zone crisis, although there were signs the outlook is improving, PMI data showed on Thursday.

The Swiss purchasing managers' index rose to a seasonally adjusted 46.1 points in October from 43.6 points in September. Although the print beat analysts' forecasts for 44.5 points, it remained below the 50 mark, which separates growth from contraction, for the seventh month in a row.

Manufacturing has been shrinking for over a year, apart from a brief pick-up in March.

"We're heading for a very difficult winter," said Julius Baer Chief Economist Janwillem Acket. "There's no quick growth perspective ahead."

More than half of Swiss exports are sold in the euro zone, where the three-year old debt crisis has dampened demand and in turn dragged on growth in Switzerland and other countries.

Swiss manufacturers, however, have been helped by the Swiss National Bank's decision to impose a cap on the franc a year ago, after the strong currency threatened to hammer exports and choke off growth.

While the production component of the Swiss PMI continued to show a contraction last month, it is edging towards the 50- point mark, giving some cause for optimism.

"The outlook has improved slightly in October; the accelerated downtrend of the previous two months has been broken," said Credit Suisse and the SVME purchasing managers' association.

Separate data released on Thursday showed Swiss retail sales rose by 5.4 percent in September from a year earlier, suggesting that private consumption will continue to support the economy.

Switzerland's economy contracted slightly in the second quarter but the government forecasts 1 percent growth this year.

Trade with Asia - particularly of watches - has helped the manufacturing sector offset some of the fallout from the euro zone.

China's economy is finally regaining some traction, while India's manufacturers saw a pick-up in new orders last month, PMI data for those countries showed on Thursday. (Reporting by Catherine Bosley and Caroline Copley; Editing by Susan Fenton)

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