UPDATE 1-Swiss GDP contracts higher-than-expected 2.6% in Q1

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ZURICH, June 3 (Reuters) - The Swiss economy contracted 2.6% in the first quarter compared with the last three months of 2019 as the coronavirus pandemic slammed output, data showed on Wednesday.

Gross domestic product fell 1.3% year-on-year, the State Secretariat for Economic Affairs (SECO) said. Economists had expected GDP to shrink 2.0% quarter on quarter and 0.9% year-on-year.

Business closures and restrictions hit the service sector hard. “Historic declines were seen in trade (-4.4%) and accommodation and food services (-23.4%), which had been struggling with falling numbers of foreign guests since back in early March,” SECO said.

Transport and communications posted its lowest negative figure in 30 years amid reduced timetables and flights. The healthcare sector (–3.9%) saw a historic decline as it suspended several medical treatments.

By contrast, public administration and finance supported GDP, the latter benefiting from growing foreign trade. However, exports and imports of services decreased.

Private consumption slumped broadly, with purchases of furniture and clothing plunging after shops closed from March 17.

Investment in construction and equipment fell as final domestic demand (–2.7%) had the biggest decline in decades.

Sectors like machinery and metals, precision instruments and watchmaking suffered as export markets dried up. Manufacturing reported the sharpest fall since the Swiss franc shock of 2015.

However, chemical and pharmaceutical exports and merchanting (+3.4%) helped boost the total exports of goods. Imports of goods dipped in line with declining domestic demand.

The government in April forecast the export-driven economy will shrink 6.7% this year, the worst downturn since 1975, before rebounding with 5.2% growth in 2021.

In response to the crisis, Switzerland has launched its biggest economic aid package ever, providing more than 60 billion Swiss francs ($62.4 billion) for businesses in government-backed loans and a short-time work scheme.

The injections will push the federal budget to a deficit of up to 50 billion francs this year.

The COVID-19 respiratory disease has killed more than 1,650 people in Switzerland, although the infection rate has slowed, allowing the government to begin relaxing restrictions.

The Swiss National Bank has vowed to maintain its ultra-loose policy. ($1 = 0.9614 Swiss francs) (Reporting by Michael Shields; editing by Thomas Seythal and Brenna Hughes Neghaiwi)