November 4, 2019 / 1:36 PM / 18 days ago

OECD cuts forecast for Swiss economic growth citing trade tensions

ZURICH (Reuters) - Swiss economic growth will slow to 0.8% in 2019 and remain below the country’s long-term average next year, the OECD said on Monday, citing increasing risks from low interest rates and international trade tensions.

A slowdown in the European economy will also weigh on the country and reduce growth from 2.8% last year, the Organization for Economic Cooperation and Development said in its biennial survey of Switzerland.

The OECD cut its forecast from a growth rate of 1% it made in June.

For 2020 the OECD forecasts Swiss growth at 1.4%, below the long-term average of 1.7% and below the Swiss government’s own forecast for expansion of 1.7% next year. The forecast was a downgrade from its May forecast for a 1.5% growth rate next year.

“Economic growth has slowed but the healthy labor market is still supporting incomes and consumption,” the OECD report said.

“However, risks to the outlook are building. Monetary policy has been very accommodative but low interest rates are adding to financial risks,” it added.

Switzerland’s low interest rates were contributing to dangers in the housing market, where property prices have mushroomed, while interest rate-related risks in the financial sector are high, it said.

The Swiss National Bank has maintained a negative interest rate of -0.75% for nearly five years to check an appreciation of the Swiss franc, which damages the country’s export-orientated economy.

The country’s banks have long complained about negative rates, saying they act like an additional charge on their activities. They paid 1.7 billion Swiss francs ($1.72 billion) in charges on deposits with the central bank as a result of negative rates during the first nine months of 2019.

Pension funds have also criticized the measure, saying low rates hurt their ability to earn enough to pay their members.

The OECD said when inflation is firmly rising, Switzerland should consider tightening monetary policy, while taking into account the exchange rate situation.

SNB Chairman Thomas Jordan has repeatedly said negative rates were essential to tame franc strength.

Indeed the SNB may take its policy rate - one of the lowest in the world - even further into negative territory, Jordan said in a weekend newspaper interview.

Fiscal surpluses in Switzerland could be used to increase spending, OECD said, which would stimulate inflation and allow higher interest rates.

Switzerland also needed to do more to prepare for an aging population’s burden on the pension system, the OECD said.

It suggested fixing the statutory retirement age at 65 for both sexes as planned, gradually raising it to 67 and then linking it to life expectancy.

Barriers to people working beyond the retirement age should also be lifted, including offering more training.

Reporting by John Revill; Editing by Michael Shields

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