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Swiss Economy Unexpectedly Shrinks In Q3 Amid Weakness In Europe

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Switzerland's economy unexpectedly contracted in the third quarter, amid sharp declines in exports and investment as well as slower consumption, thus mirroring the weakness seen across Europe, mainly in the country's top trading partner, Germany.

Gross domestic product decreased 0.2 percent from the second quarter, when the economy expanded 0.7 percent, preliminary figures from the State Secretariat for Economic Affairs, or SECO, showed on Thursday. Economists had forecast 0.4 percent growth.

The latest economic contraction was the first since the final quarter of 2016 and the weakest outcome since the first quarter of 2015, when the economy shrunk 0.3 percent.

Both the industrial and service sectors contributed to the negative quarterly result, the SECO said.

"The strong, continuous growth phase enjoyed by the Swiss economy for one and a half years was suddenly interrupted," the SECO said.

"Switzerland is thus following the significant economic downturn seen at the same time in other European countries, particularly Germany."

Household consumption barely grew in the third quarter, edging up 0.1 percent as they were reluctant to make major purchases in light of weak real wage development.

State spending shrunk 0.1 percent, while construction investment grew 0.02 percent. Equipment and software investment decreased 2 percent.

Exports dropped 4.2 percent and imports fell 2.4 percent. But SECO said, October's foreign trade figures are already indicating a swift recovery.

In the service sector, value addition in trade fell sharply and financial services sector also recorded a drop, the first in several quarters. Business services and health sectors continued to grow.

The sluggish growth in services reflects, on the one hand, the generally subdued foreign demand for Swiss services, the SECO said.

On the other hand, the weak domestic economy in the course of the subdued consumption climate in Switzerland also affected the 3rd quarter, the agency added.

"The Q3 data suggests that the central bank will maintain its current monetary policy for a while, which consists in keeping its rates in negative territory and intervening in the foreign exchange markets when deemed necessary," ING Bank Economist Charlotte de Montpellier said.

"But more than everything, the SNB wants to avoid "excessive" appreciation of the currency."

The economist believes that the Swiss National Bank won't raise interest rates until the ECB has done so, which is why the ING doesn't expect any rate hikes in Switzerland before 2020.

Compared to the same period a year ago, the GDP rose 2.4 percent in the third quarter following 3.5 percent growth in the second quarter, which was revised from 3.4 percent. Economists were looking for a 2.9 percent increase.

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