June 8, 2017 / 11:46 AM / 2 months ago

Swiss recovery from franc shock well on way - business lobby

ZURICH, June 8 (Reuters) - Switzerland's economy is three-quarters of the way through its recovery from the 2015 currency shock, the main business lobby said on Thursday, after positive jobs and inflation data showed improvement was underway.

Economiesuisse said it expected the Swiss economy to grow by 1.7 percent in 2017 and 2 percent in 2018 as the country puts behind it the "Frankenschock" which hurt exporters ranging from watchmakers to cheesemakers.

Switzerland's export-reliant economy was pushed into a tailspin in January 2015 when the Swiss National Bank suddenly ended its cap on the franc versus the euro, sending the Swiss currency soaring and making Swiss products more expensive in their main export market.

Data on Thursday showed a brightening picture, with unemployment falling to a non-seasonally adjusted 3.1 percent in May from 3.3 percent in the previous month.

Consumer prices meanwhile rose 0.5 percent in May from a year earlier, consolidating recent gains and ending a period of deflation during 2016.

"There is still some way to overcoming the franc shock, but the largest part of it is now done," said Rudolf Minsch, chief economist at Economiesuisse. "About three quarters of the business is now complete."

His forecasts were more positive than those of the Swiss government, which expects growth of 1.6 percent this year and 1.9 percent in 2018, as well as other groups like the KOF economic research institute in Zurich.

Minsch said there was now a broad recovery across many export sectors, which had previously been propped up by buoyant pharmaceutical and chemical shipments.

"The main difference we are seeing between this year and last year is the improvement is broad-based, and is happening in the machinery sector, but also the watch industry and textiles are doing better," said Minsch.

The improvement was driven by better conditions in Switzerland's main markets in Europe, as well as inflation in other countries which reduced the effect of the franc's surge. Companies had also reacted rapidly by increasing productivity and lowering costs to retain their competitiveness, he said.

Still, the franc remained overvalued and the Swiss National Bank will have to maintain its expansive monetary policy until the European Central Bank starts increasing its own interest rates, Minsch said.

The ECB gives its latest monetary policy assessment on Thursday, while the SNB is due to give an update next week.

"The SNB is like a prisoner of the ECB," said Minsch. "It cannot move until the ECB does."

Reporting by John Revill; Editing by Tom Heneghan

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