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SECO Cuts Swiss Growth Forecast On Slowing Global Economy, Uncertainty

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Switzerland's economic growth forecast for this year was slashed on Tuesday, as the country's exports and investment are being hurt by a slowing global economy and high uncertainty.

The growth forecast for this year was cut to 0.8 percent from 1.2 percent predicted in June, the State Secretariat for Economic Affairs said in a report.

The GDP growth projection for next year was retained at 1.7 percent.

SECO attributed the downward revision for 2019 largely to the effect of major sporting events. This has little relevance for the stance of the business cycle, but it is making both the slowdown of GDP growth in 2019 and the acceleration in 2020 look much more pronounced, the agency noted.

"Weaker development than previously assumed is anticipated for the global economy and uncertainty is high, which is weighing on the export economy and investment," the SECO said.

Regarding the risks to the domestic economic outlook, SECO said political uncertainty remains high with regard to Brexit as well as Switzerland's relationship with the European Union.

"A disorganized Brexit would significantly curb the European economy and thus indirectly affect Switzerland; should Switzerland's relationship with the EU worsen, its attractiveness as a business location and willingness to invest in the country could be impaired," the agency warned.

SECO's Expert Group forecast exports to grow merely below-average in 2019 for the first time in several years.

Positive contribution to growth from foreign demand is likely to be less in the coming months as signs of a weak second half of the year for Germany, one of Switzerland's important trading partners, are increasing, SECO added.

This is expected to have a particularly negative impact on the Swiss export sectors that are quite sensitive to business cycle fluctuations, such as the metal and machinery industry.

The appreciation of the Swiss franc over the past few months is also hurting exports. Experts assessed that the risk of financial market turbulence has increased recently and upward pressure on the Swiss franc could increase if further risks with considerable implications materialize. This, in turn, will dampen the export economy.

On the domestic front, companies are hesitant to make more investments, despite favorable financing conditions, due to the decreased production capacity utilization, sluggish order intake and the considerable uncertainty.

The construction sector is also expected to remain sluggish with climbing vacancy rates and falling building permits suggesting some level of market saturation, at lest in civil engineering.

Experts assessed that the risk of a major correction in the domestic real estate sector still remains, due to the simmering imbalances.

Consumption is expected to continue its moderate growth into the second half of the year, underpinned by a favorable labor market situation and declining inflation.

The average unemployment rate is forecast to hit a low of 2.3 percent this year and climb to 2.5 percent next year. Annual inflation is seen at 0.5 percent this year and 0.4 percent in 2020.

In the second quarter, the Swiss economic growth slowed to 0.3 percent from 0.4 percent in the first three months of the year.

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