Switzerland Narrowly Averts Recession in Second Quarter

Defying analyst forecasts, Switzerland’s economy grew 0.2 percent, surpassing expectations of a 0.1-percent contraction that would have led to a recession, according to Reuters. Exports and consumer spending increased, as well as construction and machinery investments.

The Swiss National Bank’s decision to remove the cap on the franc currency placed the country in a precarious position, but the economy seems to be pressing on, especially in the area of exports. Overall, exports rose 0.5 percent, particularly in such areas as watchmaking, jewelry and pharmaceuticals.

Defying analyst forecasts, Switzerland’s economy grew 0.2 percent, surpassing expectations of a 0.1-percent contraction that would have led to a recession, according to Reuters. Exports and consumer spending increased, as well as construction and machinery investments.

The Swiss National Bank’s decision to remove the cap on the franc currency placed the country in a precarious position, but the economy seems to be pressing on, especially in the area of exports. Overall, exports rose 0.5 percent, particularly in such areas as watchmaking, jewelry and pharmaceuticals.

Analysts expected exporters to suffer immensely in the wake of a stronger franc, but the surplus indicates that the goods sector is adjusting to the difficulties. However, exporters contend that a stronger currency hampers further success, and it is unclear as how long they can weather the storm. The franc has gone up around 11 percent since the beginning of 2015.

The SNB argued that the cap was too costly to maintain, but critics note the country has already paid a great deal across the board. Because of the cap, Switzerland has seen job cuts, increased work hours and reduced prices. Switzerland’s industrial weakness is a primary problem that spells future trouble, but negative interest rates and a thriving housing market provide a buffer against the shortcomings of an industrial sector that seems to be on a downward spiral.

Imports dropped 3.6 percent, which experts trace to manufacturers ordering fewer supplies, signaling a drop in production. Data shows industrial production dropped 2.5 percent year-on-year, and production fell 11 percent in June. Further, Switzerland shows troubling signs in the labor market, with more people joining a work program known as Kurzarbeit, which allows businesses to slash hours in exchange for office-related money.

Not only did the participation rate for this program increase from January to May, but companies remaining on the program for too long stand the risk of cutting jobs if there is no significant improvement in business.

The government expects the unemployment rate to climb from 3.3 percent this year to 3.5 percent in 2016. In addition, China is another thorn that could hamper growth. Swiss companies hoping to offset slow business from the European Union are in for another disappointment, as China deals with market turbulence and slow demand.

Switzerland signed a free trade agreement with the Chinese, but like many other nations that rely on China for business, the Swiss may have to look elsewhere in terms of demand markets.