TEXT-S&P report says Switzerland's economy should stay resilient

Thu Nov 8, 2012 9:28am EST

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(The following statement was released by the rating agency)

Nov 08 - The Swiss economy looks set to weaken over the coming quarters as its industrial exports and solid household consumption are affected by weak global demand, says Standard & Poor's today in the report: "Switzerland's Slowdown May Only Be Temporary."

"However, we believe the weakening is only short-lived and expect the Swiss economy to grow by 0.8% in 2012 and by 1.1% in 2013," said Standard & Poor's economist Sophie Tahiri. "Although we expect net exports and equipment spending to restrain growth in the near term, we think Swiss export companies will continue to benefit from a number of structural strengths, such as globally competitive industries and increasing exposure to faster growing emerging markets that will keep spurring the Swiss economy."

Unlike most European countries, the Swiss economy is stronger in real terms now than it was before the financial crisis. At the end of the second quarter of 2012, real GDP for Switzerland was 8% higher than its 2007 pre-crisis average, while eurozone GDP was 0.4% lower and the U.K.'s 1.5% lower. Domestic consumption has been resilient to economic uncertainty due to high employment, decline in prices for imported goods, low interest rates that have spurred credit, and a buoyant housing market.

Now, though, we believe solid consumer spending could soften over the coming months especially due to a rise in unemployment and more pessimistic expectations regarding future Swiss economic development. In particular, net exports have weakened sharply over the past few quarters, owing to weak demand not only from Europe but also from slowing growth in emerging markets. Nevertheless, we think the slowdown in emerging markets is temporary and due to tighter monetary policies implemented in response to higher inflation in 2010 and 2011, and we expect them to recover slowly through 2013 and beyond. What's more, although the EU is by far the most important destination for Swiss exports, accounting for 57% of the total in 2011, we anticipate the emerging countries will provide the biggest growth impetus for the Swiss export industry in the coming decade. According to our projections, Swiss exports to the rest of the world will exceed those to Europe by 2016.

Furthermore, Standard & Poor's econometric research suggests that Swiss exports as a whole appear not to be very vulnerable to price changes, even though certain industries such as textiles and clothing and to lesser extent machinery and metals are very price-sensitive and likely to suffer from a strong franc. "The remarkable appreciation of the Swiss franc in recent quarters has been less damaging to Swiss exports than unfavorable foreign trade, in our view," said Ms. Tahiri.

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