Swiss economists give mixed signals: the outlook for the Swiss economy in 2005 appears far from clear as we enter the New Year, with some of the country's leading experts and think tanks at odds over expectations for its performance over the next 12 months. A report.

AuteurHollingdale, Michael
Fonction Money

After years of sluggish growth mirrored throughout most of Europe and North America, the Swiss economy appeared to be back on track in 2004. The country's gross domestic product rose by some 1.6 to 1.8 per cent last year, with much of the increase due to a spurt in the second half of the year. Economists such as Daniel Kalt, head of Wealth Management Swiss Research at UBS believe that Switzerland is now on the cusp of a renewed period of expansion.

"The Swiss economy is now moving full steam ahead and is being driven forward by all the key GDP components," says Kalt.

He points out that a surge in foreign demand is driving this recovery with export-oriented sectors like chemicals, pharmaceuticals, watch making and heavy machinery leading the way. Sectors more dependent on domestic demand, such as paper and tourism, are lagging behind but still showing improved sales, which, according to Kalt, all adds up to a broad-based upswing for Switzerland. He forecasts moderately strong growth of 2.1 per cent for 2005, with the rate to be higher still in 2006.

The sun may be shining over at UBS, but Credit Suisse economists still see a rather cloudy outlook. Switzerland's number two bank says it expects growth of just 1.6 per cent in 2005. It agrees that an enhanced performance in 2004 was driven by a recovery in exports but anticipates a slowdown in foreign demand due to the Strength of the Swiss franc, especially against the US dollar.

The less optimistic outlook was backed by Switzerland's KOF Institute for Business Cycle Research in its most recent quarterly report.

"In the medium term, the industrial, construction and retail sectors show more reserved expectations," it said, adding that it anticipated, "a decline in the economic dynamic from the start of 2005."

KOF predicts growth of around 1.8 per cent for the year ahead as a whole.

But still, UBS's Kalt is optimistic that any decline in orders from the United States and Asia due to the strength of the Swiss franc will be offset by greater demand from a more robust European economy. Other economists are more anxious about the performance of Europe, with Switzerland's main trading partner, Germany, still looking a bit weak.

Employment

It is not surprising that, given his more upbeat forecast...

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