UBS economists raise growth forecasts

The recession in Switzerland is over. Economic growth has returned. For 2010, UBS forecasts economic growth of 2.0%. Previously, UBS economists had forecast growth of 1.7%. Immigration will sustain consumption this year, but the expected rise in unemployment will have a negative impact on consumer spending. UBS economists expect equipment investments, net exports and construction investments to support growth. Immigration and record-low mortgage interest rates are fueling demand for housing. UBS published this updated forecast in its quarterly UBS Outlook Switzerland report.

Low levels of capacity utilization, high unemployment and the strong franc will keep inflationary pressure relatively low this year. UBS expects an average inflation rate of 0.6% for the year. UBS economists expect the SNB to start raising interest rates only in autumn, but to do so relatively quickly.

UBS economic indicator markedly improved The UBS economic indicator supports the positive outlook for the economy. A barometer for the Swiss economy, the indicator improved from minus 0.6 in the third quarter to 0.9 in fourth quarter 2009 and then to 1.4 in first quarter 2010.

The Swiss industrial sector appears to be recovering after a difficult 2009. The machinery, electrical and metals industries, which were greatly affected by the crisis, are expecting unchanged or slightly higher sales year-on-year in first quarter 2010 – the first time in a while. According to the survey results, the chemicals industry already turned the corner in fourth quarter 2009. The watchmaking industry, however, is hoping to stabilize in the first quarter.

In the service sector, there was little improvement in the fourth quarter. Profits remained below the previous year’s levels, layoffs continued at a slow pace, and sales declined more than expected in the third quarter – particularly in terms of exports. Survey participants expect activity to return to 2009 levels in first quarter 2010. However, the service sector was less affected by the crisis last year than the industrial sector.

In comparison, retailers and tourism companies were relatively pessimistic. Both sectors expect profits to decline further. The Swiss print and media industry also declined sharply late 2009. Prices fell faster than in the previous year and layoffs increased. The industry expects the situation to stabilize in first quarter 2010.

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