Swiss economy to recover in second half of 2013 -OECD

Tue Nov 27, 2012 5:00am EST

* OECD sees growth of 0.8 pct in 2012, 1.1 pct in 2013

* CPI expected at -0.6 pct in 2012, 0.1 pct in 2013

* OECD says rates should stay on hold

* Measures needed to slow credit growth

PARIS, Nov 27 (Reuters) - The Swiss economy is set to recover in the second half of 2013 but the central bank should keep rates on hold for the time being, the OECD said on Tuesday.

In its economic outlook report, the Organisation for Economic Co-operation and Development said export weakness had caused Swiss growth to slow although domestic demand remained robust and should drive a recovery despite the strength of the franc.

"Economic growth is projected to pick up again in the second half of 2013 on the back of increases in private consumption and investment," the OECD said. "Policy interest rates should stay unchanged over the projection period, consistent with the persistent economic slack and minimal inflation."

To counter the risk of deflation and a recession, the Swiss National Bank set a cap of 1.20 per euro on the soaring safe-haven franc in September 2011 and has kept interest rates ultra-low even as signs mount of a potential housing market bubble.

The OECD called for targeted measures to slow credit growth, especially for cantonal banks that it said are particularly exposed to the housing sector.

The Swiss economy recorded a surprise contraction in the second quarter but the OECD forecasts growth of 0.8 percent for the full year, accelerating to 1.1 percent in 2013, down from its May forecast for 1.9 percent.

The OECD also reiterated its call for the two big Swiss banks - UBS and Credit Suisse - to beef up their capital bases.

"In the light of the continuing turmoil in global financial markets, the amount of loss-absorbing capital of the two biggest banks, which remain highly leveraged, should be increased," it said.

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