UPDATE 1-Swiss economic growth slowed during second quarter

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ZURICH, Sept 5 (Reuters) - Swiss economic growth decelerated in the second quarter to 0.3% from a downwardly revised 0.4% in the previous period, as the country felt the effect of the slowdown in neighbouring Germany and escalating trade tensions.

The quarter-on-quarter growth rate, released on Thursday by the Swiss government, beat the 0.2% growth seen by analysts in a Reuters poll.

“The development of domestic and foreign demand was weak, as in other European countries,” the government said.

The export-dominated Swiss economy grew by 0.2% compared with the year-earlier quarter, weaker than the 0.9% forecast. The Swiss government said in June said it expects an annual growth rate of 1.2%, although it is due to update its forecasts on Sept. 17.

When the effect of sporting events was removed the Swiss economy grew at a year-on-year rate of 0.9%. Switzerland, which is home to sporting organisations like soccer body FIFA and the International Olympic Committee, sees an impact on economic growth when licensing and television fees from events like last year’s soccer World Cup are taken into account.

The government said investment in equipment had seen a substantial decline during the quarter.

“Investment in machinery was reduced again in particular, as the uncertain environment is dampening companies’ investment activity,” it said.

Although manufacturing contributed 1.3% towards economic growth, much of this was concentrated in the chemicals and pharmaceticals sectors, it added.

Exports fell, while Switzerland’s machinery and metals industry struggled, the government said.

Manufacturers in the country have been bearing the brunt of the downturn, with falling demand from Germany - Switzerland’s largest export market - and the automotive sector, where Swiss suppliers include steelmaker Schmolz+Bichenbach, Georg Fischer and sound-and-heat dampening specialist Autoneum .

The rising value of the Swiss franc, which recently hit a two-year highs against the euro, is another headache for Switzerland. More than half of all Swiss exports go to the euro zone.

Juerg Marti, director of Swissmechanic, an association representing small and medium-sized industrial companies in Switzerland, said the situation had clearly worsened in recent months.

Less than half of Swissmechanic’s members were now positive about the future, down from two thirds at the beginning of the year, he said.

“The main reason for the downturn has been the rising political uncertainties like the trade war between China and the U.S., and the whole discussion about Brexit. That has reduced the appetite to invest by companies and consumers in Europe, which has had a big knock-on effect on Swiss companies which supply them.

“The uncertainty has also triggered a stronger franc, which was already cutting the margins. It’s a double problem for many companies.” (Reporting by John Revill; Editing by Toby Chopra)