Swiss economic growth may halve this year, slowing more than most other European nations, as the slump in the US restrains the continent's most export-reliant economy, economists say.
Swiss exporters such as ABB Ltd, the world's largest maker of electrical equipment, Novartis AG, the sixth-biggest drugmaker, and food company Nestle SA depend on the US and Europe for three-quarters of their foreign sales since Switzerland's population of 7.2 million is too small to support them.
Economists reduced their forecasts for Swiss growth as US companies begin firing hundreds of thousands of workers and European neighbors' economies weaken. The Swiss government will report first-quarter gross domestic product figures in a month.
"We'll see a downward surprise for GDP this year in Switzerland," said Daniel Scheibler, chief economist at Bank Sarasin & Cie.
"Exports are slowing strongly."
He forecast growth will more than halve to 1.6 percent from 3.4 percent in 2000, which was the fastest pace in 10 years.
Scheibler has among the most pessimistic of estimates.
Switzerland's two largest economic think tanks, Zurich's KOF and Basel's BAK, see growth of around 2 percent this year.
In comparison, the European Commission, the European Union's executive arm, last week cut its growth forecast for the 12 nations that share the euro to 2.8 percent from 3.2 percent.
The extent of the Swiss slowdown -- and its effect on inflation -- is represented on the bond market. The yield on the benchmark 10-year bond has dropped 59 basis points this year, the most of any European country. Italian yields have declined only half as much.
A week ago, Zurich-based ABB said orders fell 5 percent in the first quarter, and sales rose just 2 percent to US$5.38 billion.
Its stocks has dropped 26 percent this year, while shares of competitor General Electric Co are little changed.
At Sia Abrasives Holding AG, Europe's third-largest maker of sanding products, sales growth this year will slow to about 6 percent to 8 percent from last year's 10 percent, the company predicted. Business in the first quarter was "somewhat more subdued," Sia said.
"The economic slowdown in Switzerland will be bigger than it looks at the moment," said Peter Schifferle, Sia's chief executive. "We have a large investment program, but where capacity is concerned, we're showing restraint at the moment."
Like the Federal Reserve, the Swiss central bank loosened its monetary policy, cutting interest rates by 25 basis points in March. The Swiss National Bank now aims for a midway point between its 2.75 percent and 3.75 percent target band for the three-month Libor rate, which is set daily in London.
Still, Switzerland has the lowest borrowing costs in Europe, giving companies a competitive advantage. The SNB last year pushed up rates 175 basis points in three steps, trying and succeeding to keep inflation from rising through its ceiling of 2 percent, as the economy grew at double the pace from 1999.
Now, economists say the bank will cut rates a second time at its next quarterly meeting June 14 or Sept. 20, again by 25 basis points. They argue that consumer-price inflation, currently at 1.2 percent, is likely to be about 0.5 percentage point below the central bank's forecast of about 2 percent this year.
On Thursday, the government will report April consumer confidence. It reached a 12-year high in January, suggesting domestic consumption may defy slowing exports.
Having had to take real wage cuts in the 1990s, when Switzerland had hardly any economic growth for six years, workers today are seeing their wages rise in inflation-adjusted terms, economists said.
Moreover, unemployment is lower than in any member state of the European Union. April's rate, due to be reported Monday, is forecast to have declined to 1.7 percent from 1.8 percent, according to a Bloomberg News survey of seven economists, as services businesses and industrial companies filled vacancies. The rate isn't adjusted for seasonal variations.
Unemployment may have bottomed out.
"We're no longer carrying temporary workers," said James Brissenden, chief executive of Inficon Holding AG, the largest maker of sensors and leak detectors used in semiconductor production. They account for 6 percent of Inficon's workforce.
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