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ZURICH, June 13 (Reuters) - The Swiss government raised its 2019 economic growth forecast to 1.2% on Thursday but warned of risks to the global economy including the trade dispute between the United States and China, uncertainty over Brexit and Italy’s financial situation.
The State Secretariat for Economic Affairs (SECO) had in March forecast that the economy would expand by 1.1% this year.
The upgrade comes after the Swiss economy grew by 0.6% in the first quarter, double the 0.3% rate at the end of 2018. That was helped by strong domestic demand, one-off factors like a mild February which supported construction, and an improvement in the automotive sector.
But SECO cautioned that while the international and Swiss economy had expanded significantly between January and March, the outlook was still subdued and the global economy still faced an abundance of downside risks.
“In the wake of the declining momentum in the international economy, the development of world trade is weak and demand for Swiss products is flattening out, slowing down the export economy,” SECO said.
Its report comes ahead of the Swiss National Bank’s quarterly policy meeting at which the central bank was expected to keep its ultra-loose monetary policy unchanged.
SECO said the trade dispute between Washington and Beijing was starting to take its toll, with growth slowing in China, and had taken a turn for the worse with the latest tariff increases.
“If the situation were to intensify further, the global economy, and thus the Swiss economy, would be expected to cool off more strongly, particularly if the EU and Germany were to be significantly affected,” SECO warned.
But it added that if an agreement on key aspects of the conflict were to be reached, that could boost the Swiss economy.
SECO also pointed to uncertainty in Europe such as how and when Britain will leave the European Union as well as Italy’s economic and financial situation.
The European Commission said last week that Italy’s growing public debt broke EU rules, opening the way for a possible disciplinary procedure and a clash with Rome’s anti-austerity government.
In 2020 SECO sees growth of 1.7%, in line with its March forecast. (Writing by Michelle Martin Editing by Madeline Chambers and Michael Shields)