September 20, 2016 / 7:20 AM / 3 years ago

UPDATE 1-Export recovery boosts Swiss growth prospects

* Exports rise underlying 7 pct in August

* Government tweaks 2016 growth forecast higher

* Drug sector booming, watchmakers still struggle (Recasts with economist, trade data, analysis)

By John Revill

ZURICH, Sept 20 (Reuters) - The resilience of Switzerland’s export sector helped the government upgrade its economic outlook for 2016 despite uncertainties like Britain’s vote to quit the European Union.

The Swiss economy is expected to grow by 1.5 percent in 2016, the State Secretariat for Economic Affairs (SECO) said on Tuesday, up from a June forecast of 1.4 percent.

The rate is almost double the 0.8 percent level last year after Switzerland was shaken by a sudden surge in the franc when the country’s central bank in January 2015 scrapped a limit on the currency versus the euro.

A stronger franc makes Swiss exports more expensive in the eurozone, Switzerland’s largest market, hurting the country’s exporters.

But trade data on Tuesday showed a continued recovery, with the trade surplus widening to 3.03 billion Swiss francs ($3.10 billion) in August as exports rose by a nominal, seasonally adjusted 7 percent from a year earlier.

The increase was led by the country’s pharmaceuticals and chemicals sector, where exports rose 25 percent year on year, although watchmakers continued to struggle, with shipments down nearly 13 percent.

The downturn for watchmakers, driven by weaker demand in tourism hot spots in Europe and slack sales in key markets like Hong Kong, has already triggered profit warnings at industry giants Richemont and Swatch.

SECO expects foreign trade to account for almost half of Swiss GDP growth this year, compared with no contribution at all during 2015.

“Trade is very important to the Swiss economy, and this year a lot of growth impulses are coming from foreign trade,” said Ronald Indergand, head of short-term economic analysis at SECO.

“It’s a varied picture across different sectors, and some areas like tourism and manufacturing are still finding it tough. But some like machinery, electronics and metals are doing somewhat better, so at the moment it looks like the franc shock has really bottomed out.”

Some risks remained, not least how Brexit is enacted, although no impact had materialised so far, SECO said.

“As long as this situation continues, there is a good chance that the negative economic effect of a Brexit will remain largely limited to the UK itself and will have only a moderate impact on Continental Europe and other regions around the world,” it said.

SECO forecasts Swiss economic growth will accelerate in 2017 to 1.8 percent, the same estimate as in June and close to the country’s long-term average.

The improved prospects showed Swiss companies can cope with the current level of the franc, Indergand said. The franc now trades at around 1.0950 to the euro after rising above parity early last year.

“The overall picture looks much brighter than a year ago,” said Indergand.

$1 = 0.9774 Swiss francs Editing by Michael Shields

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