By Neil MacLucas
ZURICH--Switzerland's economy contracted for the first time in 4
1/2 years in the first quarter as the strength of the Swiss franc
hit foreign demand for the country's pharmaceutical and machinery
products.
Gross domestic product in the three months through March fell
0.2% from the previous quarter and was 1.1% higher from the same
period last year, the Federal Department of Economic Affairs,
Education and Research said. The result was below economists'
expectations for a quarterly contraction of 0.1% and annual
expansion of 1.6%.
Economists had expected the Swiss economy to shrink after the
Swiss National Bank in January ended a 3 1/2-year policy of capping
the franc at 1.20 per euro. The eurozone is the Alpine country's
main trading partner.
The franc cap had helped keep Swiss export prices competitive,
but the currency's gain of around 12% since the central bank
scrapped the cap has pegget back sales to the eurozone which buys
almost half of Switzerland's exports.
With the franc around 1.0350 against the euro compared with
1.2020 at the start of the year, a further contraction in the
current quarter cannot be excluded, according to Eric Scheidegger,
head of Switzerland's Economic Policy Directorate.
"The export sector, as well as the retail and tourism industries
have reacted quickly to the strength of the franc, and I think it's
fair enough to expect further weakness in the Swiss economy," said
Mr. Scheidegger.
Growth in private consumption and investment in equipment failed
to offset the decline in virtually all sectors of the Swiss export
sector, from luxury goods to industrial equipment and
pharmaceuticals.
Swiss goods exports dropped 2.3% in the quarter from the
previous three months, with pharmaceutical, chemical and industrial
machinery sales hit particularly hard by the strong franc.
Analysts said the first-quarter slowdown was a "logical
consequence" of the central bank's move to allow the franc to float
freely, and follows 13 consecutive quarters of economic
expansion.
"The blows to the export and tourism sectors all fit with the
fallout from the strong franc," said Karsten Junius, economist at
J. Safra Sarasin.
The Swiss economy has underperformed its neighbors, with
European Union economies notching up aggregate growth of 0.4% in
the first quarter from the previous three months and expanding 1.4%
from the first quarter last year.
Switzerland's Department of Economic Affairs has more than
halved its forecast for full-year growth since the SNB decision,
and will update its GDP, inflation and unemployment forecasts on
June 16.
The Swiss central bank, which acknowledged the move to allow the
franc to float free will pose considerable challenges for the
economy, will review its growth projection of around 1% on June
18.
Write to Neil MacLucas at
neil.maclucas@wsj.com<mailto:neil.maclucas@wsj.com>
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