September 6, 2018 / 9:46 AM / in 18 days

UPDATE 1-Swiss economy overcomes trade tensions to grow faster than expected

(Updates throughout adding comments from government economist)

By John Revill

ZURICH, Sept 6 (Reuters) - Switzerland has so far dodged the impact of rising international trade tensions, its government said on Thursday, as the country reported its fastest annual economic upswing in eight years.

A booming manufacturing sector and strong exports were the foundation for an annual GDP growth rate of 3.4 percent during the second quarter, the highest level since 2010.

Rising global trade tensions, with the United States and China imposing tit-for-tat tariffs, had been highlighted by the Swiss as a major risk for their country’s export-reliant economy, but has so far failed to have an effect.

“There remain concerns about a potential trade war, especially if it affects Europe, and from any budgetary discussions in Italy which might in the end lead to a rise in the franc,” said Ronald Indergand, an economist responsible for forecasts at the Swiss Secretariat for Economic Affairs (SECO) which issued the figures on Thursday.

“But so far these haven’t materialised – in fact quite the contrary. Exports have accelerated on a broad base and have seen no effect so far, and Swiss companies are continuing to invest.”

For 2018 as whole Indergand expected Swiss economic growth to be nearer to 3 percent than 2 percent, with strong growth in the first six months allied to forward looking economic indicators such as the PMI index looking encouraging.

Still, Indergand acknowledged that risks had risen since the second quarter.

China said it will be forced to retaliate if the United States implements any new tariff measures, Beijing’s commerce ministry warned on Thursday, as the world’s two biggest economies remain locked in an intensifying trade war.

One danger for Switzerland would be if the United States also issued wide-ranging tariffs against the European Union, Switzerland’s main export market, Indergand said.

Uncertainties have triggered a rush into the franc in recent weeks, with the safe-haven currency gaining 6.4 percent against the euro since it temporarily reached 1.20 versus the common currency in April.

A strong franc is damaging to Switzerland’s exporters by making their products more expensive.

“Whereas the trade disputes are sort of under control in that they are the result of negotiations between governments, if budgetary discussions in Italy shake the markets, we don’t really know what could happen and where it would end,” said Indergand.

“The worst case would be full financial turmoil, which could trigger a rise in the franc. That would have a major effect on the Swiss economy,” he said.

During the three months to end of June Swiss generated above-average growth for a fifth consecutive quarter, and grew at a 0.7 percent versus the first three months the data said on Thursday.

Growth in energy production from hydropower and nuclear power plants boosted the energy sector, helping exports of industrial products and energy rise sharply. (Reporting by John Revill and Michael Shields; Editing by Alison Williams)

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