December 19, 2017 / 9:07 AM / 3 months ago

UPDATE 1-Swiss government sees economy gathering pace as franc weakens

* SECO sees economy accelerating to 2.3 pct in 2018

* Swiss economy boosted by eurozone upswing, weaker franc

* Full benefit of weaker franc still to come - SECO (Recasts, adding detail and economist comment)

By John Revill

ZURICH, Dec 19 (Reuters) - The Swiss government upped its economic growth forecasts for 2017 and 2018 as the country’s export-led economy bounces back from a sluggish start to the year and gets a boost from the Swiss franc’s recent weakening.

Economic output will increase by 1 percent in 2017, the government’s expert group forecast on Tuesday, before accelerating to 2.3 percent in 2018 and 1.9 percent in 2019 — above its long-term average of 1.7 percent.

It said inflation would remain tame.

The outlook was more bullish than forecasts in September and reflected improvements in foreign trade as the country overcame the 2015 currency shock which hurt exporters, the State Secretariat for Economic Affairs (SECO) said.

Last week the Swiss National Bank said it expected the economic recovery to continue as it tweaked upwards its growth forecasts but kept its ultra-loose monetary policy in place.

The Swiss economy has been squeezed by the sharp appreciation of the franc, which makes the country’s products more expensive in the eurozone, its biggest market.

SECO said it “expects the Swiss economy to make a speedy recovery over the next few quarters”.

“The euro area has developed and is expected to grow even more dynamically than we expected three months ago, and domestically we are seeing the effects of the currency shock have really levelled off. It looks like nearly all sectors that have been hit by the currency shock are growing quickly,” said Ronald Indergand, an economist at SECO.

“Companies which have held off investing are now spending again, and there is a rise in exports. There is a bounce-back in the whole economy,” Indergand said in an interview.

The franc has lost nearly 8 percent versus the euro in 2017, providing respite to companies whose profit margins evaporated as they cut prices to remain competitive.

Indergand said the full benefits of the weakening had not yet become apparent.

“It takes time for contracts to be changed or new ones to be won and people to adapt to the reduction in the value of the franc,” he said.

Further devaluation next year would be another help for the Swiss economy, Indergand said, although this was not the basis for SECO’s forecasts.

Its upgraded view follows leading indicators like the Purchasing Managers Index and the KOF barometer which also pointed to a rosier outlook for Switzerland.

The Swiss PMI for November reached its highest level since July 2010, while the KOF Institute’s economic barometer in November, which forecasts how the Swiss economy should perform in around six months time, reached its highest level since June 2010. (Reporting by John Revill; Editing by Michael Shields)

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