Switzerland's leading growth indicator fell sharply for the fourth month in a row in October, hitting its lowest level in more than two years and pointing to a marked slowdown in growth, although a recession is not yet on the horizon. The KOF economic barometer fell to 0.80 points in October from 1.21 points in September, well below a Reuters poll forecast for 0.98 points.
"Falling demand from the eurozone and the strong franc are weighing," said Sarasin economist Ursina Kubli. "The level shows the Swiss economy is coming to a halt and a mild recession is not ruled out." The Swiss government and the Swiss National Bank (SNB) have forecast slowing growth in coming quarters as the debt crisis in the neighbouring eurozone and ensuing turbulence in financial markets are likely to hit confidence and consumer spending.
The KOF reading echoed other indicators that suggest the once resilient Swiss economy is feeling the strain. "Growth in Swiss gross domestic product (GDP) is likely to continue easing. In year-on-year terms, however, growth rates are expected to remain positive," the KOF Swiss Economic Institute said in a statement on Friday.
The UBS Swiss consumption indicator inched up slightly in September, but remained only a whisker above the level seen during the last two recessions, meaning Switzerland could be headed for another downturn. The Swiss Zew index for October showed financial markets were less gloomy on the outlook for the economy than they were a month earlier, although the majority still expected economic prospects to worsen.
Despite the SNB's move to tame the runaway Swiss franc by introducing a cap of 1.20 to the euro at the start of September, many still regard the currency as overvalued. But analysts dismissed speculation the SNB would yield to calls from trade unions to shift the cap.