UPDATE 1-Swiss growth stronger than expected in third quarter

Thu Nov 29, 2012 3:03am EST

* Q3 growth 0.6 pct q/q, vs Reuters poll for 0.2 pct

* Government spending supports, investment weighs

* Exporters hurt by strong safe-haven franc

* SNB committed to cap on franc to protect economy (Adds detail, analyst comment, background)

By Emma Thomasson

ZURICH, Nov 29 (Reuters) - The Swiss economy grew faster than expected in the third quarter after government spending rose even as sluggish exports helped the central bank's policy of capping the safe-haven franc.

Gross domestic product rose 0.6 percent in the third quarter from the previous quarter, compared with a forecast for 0.2 percent and after a 0.1 percent contraction in the second quarter.

"The weak leading indicators would not necessarily lead one to have expected an increase," Bernd Hartmann, head of investment research at VP Bank, said on Thursday. "For once, however, it is not private households who are responsible for the increase but significantly higher government spending."

Government spending rose 1.7 percent on the quarter while private expenditure - long the saviour of Swiss growth - was up 0.1 percent. Exports rose 0.5 percent, with investment in fixed assets and software down 1.2 percent.

The Swiss National Bank must keep the lid it has imposed on the franc at 1.20 per euro for the foreseeable future or risk threatening price stability and economic growth, Chairman Thomas Jordan said on Wednesday.

The SNB has predicted the economy will grow 1 percent this year. It will issue its forecast for 2013 at a quarterly monetary policy meeting on Dec. 13.

Year-on-year, gross domestic product rose 1.4 percent, compared with a forecast for 0.9 percent, up from a revised 0.3 percent growth in the previous three months, the State Secretariat for Economics said.

"The details are not so great. Investment is negative. Household consumption has gone down compared with the last quarter and net exports are negative," Sarasin economist Alessandro Bee said.

"For the SNB, these figures should not make a difference. Even if exports are OK, job losses among export companies are less heartening. They have no choice but to stick with the cap of 1.20."

Swiss exports fell 16 percent in October, hit by weak sales in the machinery and electronics industry, while manufacturing shrank for a seventh month in a row as demand continued to suffer from the euro zone crisis. More than half Switzerland's exports are sold in the euro zone.

"It is doubtful that Switzerland is already on a sustainable recovery path. The economic problems in the eurozone are having an increasingly strong impact on the Swiss economy," Hartmann of VP Bank said.

The Organisation for Economic Co-operation and Development said on Tuesday it expected the Swiss economy to recover in the second half of 2013 and the central bank should keep rates on hold for the time being. (Additional reporting by Martin de Sa'Pinto; Editing by Dan Lalor)

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