Switzerland cuts growth forecasts in light of energy and inflation risks

Switzerland cuts growth forecasts in light of energy and inflation risks

ZURICH (Reuters) – The Swiss government drastically cut its economic growth forecast on Tuesday, citing rising risks from a “strained energy situation and sharp price increases”.

It now expects the country’s economy to expand 2.0% this year, down from its June forecast of 2.6% growth. [L8N2Y229W]

The State Secretariat for Economic Affairs (SECO) said the economy is expected to expand in 2023 by 1.1%, down from the previous forecast for a 1.9% increase.

The numbers are adjusted to remove the impact of major sporting events.

“After a positive first half of 2022, the Swiss economy is now facing a deteriorating outlook,” SECO said. “The tense energy situation and sharp price increases are weighing on the economic outlook, especially in Europe.”

SECO raised its inflation forecast, saying it expects consumer prices to rise 3% in 2022 and 2.3% in 2023. It previously forecast 2.5% inflation this year and 1.4% in 2023.

Earlier this month, three of Germany’s leading economic institutes lowered their forecasts for Europe’s largest economy next year, predicting that soaring energy prices caused by the Ukraine war will take a heavy toll.

Switzerland, which is less dependent on Russian gas and has experienced much lower inflation than the neighboring eurozone, traditionally has one of the strongest economies in Europe.

The favorable unemployment situation in Switzerland, with an unemployment rate forecast of 2.2% this year and 2.3% next, will continue to support domestic demand, SECO said.

But external demand was expected to weaken, with demand for Swiss products from the eurozone, the US and China expected to be lower than previously expected.

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SECO said the overall outlook for the Swiss economy largely depends on the global economy and how the energy supply situation develops, saying a sharp drop in Russian gas flows has raised the risk of a shortage in Europe.

It added that although its forecast was based on the assumption that there would be no shortages, the Swiss economy would be “severely affected” if there was a reduction in gas or electricity.

He added that higher interest rates, introduced by central banks around the world to counter inflation, also increased the problems associated with global debt and financial markets.

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