Switzerland slashes 2019 growth forecast

The Swiss government cut its 2019 growth forecast by a third on Tuesday, citing as risks the escalating trade war between China and the United States, the rising Swiss franc and the drastic slowdown in neighbouring Germany.

The government cited weak exports to Germany, which was hitting sectors like the metal and machinery industry.

Government economists now expect the country’s economy to grow by 0.8% in 2019, down from the June forecast of 1.2% and well below the long-term average increase of 1.7%.

The government said it expects the Swiss economy to grow 1.7% in 2020, the same rate as the previous forecast.

“Weaker development than previously assumed is anticipated for the global economy and uncertainty is high, which is weighing on the export economy and investment,” it said.

Companies like steelmaker Schmolz Plus Bichenbach see weaker demand from automotive customers, with its order backlog shrinking by nearly a third since the end of 2018.

“Automotive customers are about half of our sales and this sector is really struggling. Germany was maybe the fastest to drop, but clearly this is all over the European carmakers now,” Chief Financial Officer Matthias Wellhausen told Reuters.

The Lucerne-based company is seeking higher productivity and looking for extra contracts for its steel mills. It has scrapped some shifts, introduced short-time working and extended its summer shutdown.

“We do see the destocking continuing, but eventually that will have to end and companies will buy new steel eventually,” Wellhausen said at the end of last month.

The Swiss franc’s rise is also curbing exports, the government said on Tuesday. Strength in the safe-haven currency makes Swiss exports more expensive abroad.

The Swiss National Bank, which has been battling against the strong franc for eight years, holds its quarterly policy review on Thursday.

Wellhausen said 30% of his company’s costs were in francs but all its revenue was in euros. “But if I had only one wish, I’d ask for the volumes to come back,” he said.

Another company hit is Autoneum, which makes auto components to reduce sound and protect cars from heat. It swung to a 6 million franc first-half loss from a 60.1 million franc profit a year earlier.

“The global automotive recession is noticeable in lower volumes, which is leading to lower capacity utilisation, especially in our European and Asian plants,” Chief Executive Martin Hirzel said.

The company, which has a plant in eastern Switzerland, has cut costs, reduced temporary workers and frozen hiring.

“At the moment there is no sign of a market recovery in the short term,” Hirzel said. “The markets and overall macroeconomic environment remain very challenging.”  The European Union may need to scale down plans to boost growth and mitigate the social impact of a slowdown if it fails to quickly agree on a long-term budget, European officials said on Monday, as Germany pushes to restrict spending.

Reuters