By John Revill
ZURICH, Sept 5 (Reuters) - Switzerland’s economy grew at its slowest annual rate in nearly eight years in the second quarter, according to data likely to reinforce expectations that the Swiss National Bank will keep monetary policy ultra-loose when it meets next week.
Tepid consumer demand and weaker foreign trade weighed on the export-reliant country, the State Secretariat for Economic Affairs (SECO) said on Tuesday as it reported year-on-year growth halved to 0.3 percent from 0.6 percent early this year.
That missed even the lowest estimate in a Reuters poll of economists, who on average expected a 1.1 percent expansion, and marked the lowest growth since late 2009, according to Thomson Reuters data.
For a graphic, click [tmsnrt.rs/2wDsBRI]
Analysts expect weak growth will prompt the SNB to keep its negative rates on hold at its quarterly policy meeting on Sept. 14.
“If you look at GDP there is no reason for the SNB to adopt a more hawkish stance,” said UBS economist Alessandro Bee.
“One of the preconditions for the SNB to be more hawkish is that they see Switzerland has overcome the currency shock, but the GDP figures show this is not yet the case.”
The SNB abandoned its 1.20 floor for the franc versus the euro 2-1/2 years ago, sending the safe-haven franc soaring against the currency of its main export market. Switzerland has been gradually recovering since.
Markus Schmieder, an economist at Wellershoff & Partners, a consultancy, said he expected the SNB to revise downwards its forecast of 1.5 percent growth for 2017, which he said was now impossible to reach.
“The SNB’s low interest rates policy has always been about trying to weaken the franc, but it has also helped Swiss industry,” said Schmieder. “With the current weak economic growth the SNB will see no reason to change its policy.”
The SNB declined to comment, but Chairman Thomas Jordan said last week an exit from ultra-loose policy was not on the cards, noting inflation remained low and higher interest rates could endanger Switzerland’s economic recovery.
Swiss consumer prices were flat in August compared with July and rose 0.5 percent year-on-year.
The main reason for feeble growth of late was weakness in domestic demand coupled with an unusual rise in imports during the second quarter, SECO economist Ronald Indergand said.
“I wouldn’t say the recovery is in question, but it is taking a surprisingly long time,” he added.
In June the government lowered its 2017 economic growth forecast to 1.4 percent from 1.6 percent. It is due to give an update on Sept. 21.
“We haven’t done our forecasts yet, but given the data today I don’t see much potential for a stronger growth this year compared to what we have been expecting so far,” Indergand said.
Additional reporting by Joshua Franklin; Editing by Michael Shields and Catherine Evans