UPDATE 1-Swiss growth evaporates in second quarter as trade slows

Tue Sep 2, 2014 9:29am BST

* Swiss GDP unchanged q/q vs 0.5 pct forecast

* GDP up 0.6 pct y/y vs 1.7 pct forecast

* Weak exports, falling construction spending weigh (Adds details, analyst comment)

By Caroline Copley

ZURICH, Sept 2 (Reuters) - Switzerland's economy unexpectedly stalled in the second quarter, showing zero growth as trade took a hit from stagnation in its main export market Europe and falling construction spending.

The flatlining data, missing forecasts of a 0.5 percent lift from the previous quarter, was the weakest reported by the State Secretariat for Economic Affairs in two years and suggested forecasts for the rest of the year may need to be cut.

The growth prospects of the export-orientated country are closely tied to the fortunes of the euro zone, where the impact of the crisis in Ukraine is weighing.

"It looks as if in spite of the SNB (Swiss National Bank) actions "when Europe sneezes Switzerland catches a cold" remains true," said Swissquote Bank economist Peter Rosenstreich.

The Swiss economy has been supported by the Swiss National Bank's nearly three-year-old policy of capping the franc at 1.20 to the euro to stave off the threat of deflation and recession.

Net trade took a toll as exports rose less than imports, while investment in construction fell 0.7 percent quarter-on-quarter and government spending also declined.

Private consumption posted growth of just 0.2 percent suggesting domestic demand, which has supported the economy through periods of weak demand for exports over the past year, was slowing.

"The current developments show that private consumption is taking a breather," said Daniel Hartmann, an economist at Swiss bank Bantleon.

Recent data has also pointed to dimmer prospects for the Swiss economy. Factory activity expanded at a slower pace in August as order books shrank, suggesting manufacturers may have taken too rosy a view of the economy's prospects.

The Swiss National Bank (SNB) currently forecasts growth of 2 percent for this year.

In a weekend newspaper interview, SNB Chairman Thomas Jordan cautioned the central bank may cut its economic outlook at its meeting in September, given increased macroeconomic and geopolitical risks.

The SNB is due to announce its quarterly monetary policy decision on Sept. 18 when it will update its growth and inflation forecasts.

The franc has strengthened in recent weeks towards the 1.20 franc per euro threshold, posing a further headwind for Swiss exporters, as investors speculate the European Central Bank may further loosen monetary policy in the euro zone to stimulate growth.

Jordan said at the weekend, the SNB stood ready to intervene in the foreign exchange market to defend the cap, which remained "absolutely central."

Gross domestic product rose by 0.6 percent year on year, missing expectations of 1.7 percent growth and down from a revised 2.1 percent in the prior quarter, the State Secretariat for Economics said. (Additional reporting by Joshua Franklin.; Editing by Nick Macfie and Andrew Heavens)

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