Swiss Economy Unexpectedly Stalls as Euro Area Takes Toll.

http://www.bloomberg.com/news/2014-09-02/swiss-gdp-unexpectedly-stagnates-as-euro-area-leaves-mark.html

The Swiss economy unexpectedly stalled in the second quarter as stagnating growth in the euro area hurt exports.

Swiss gross domestic productwas unchanged in the three months through June from the previous quarter, when it expanded 0.5 percent, the State Secretariat for Economic Affairs in Bern said in a statement today. That’s the weakest quarterly reading in two years and compares with a median estimate for 0.5 percent growth in a Bloomberg News survey of 16 economists.

The Swiss National Bank’s three-year-old cap on the franc has helped the economy outperform that of the euro area in nine of the last 12 quarters. With conflicts between Russia and Ukraine, as well as in the Middle East, putting a strain on global growth, SNB President Thomas Jordan yesterday reaffirmed the ceiling’s importance to ward off economic risks.

“Unfortunately, one must conclude that the Swiss economy has taken a step back -- if not two,” said Felix Brill, senior economist at Wellershoff & Partners Ltd. in Zurich. “My big concern is that the domestic economy has lost momentum faster than expected.”

Net trade was a drag on growth as exports increased at a slower pace than imports, while consumption of households and non-governmental organizations rose just 0.2 percent from a quarter earlier, according to SECO. Investments in construction declined 0.7 percent.

European Sneeze

Given slowing domestic demand, it is even more important for exports “to pick up steam,” Brill said. “But here the conditions aren’t exactly favorable, given the faltering recovery in Europe.”

In the past, domestic demand, due in part to high immigration, and expanding trade with Asia, has helped the Swiss economy compensate for anemic growth in the euro area, its biggest destination for exports.

The economy of neighboring Germany contracted in the second quarter, while France stagnated and Italy succumbed to its third recession since 2008. Russia sanctions risk depressing the outlook even further.

The cap-shielded franc “seemingly has been unable to protect Switzerland from Europe recent economic downturn,” said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote Bank SA in Gland, Switzerland. “It looks as if in spite of the SNB actions ‘when Europe sneezes Switzerland catches a cold’ remains true.”

Russia Sanctions

Swiss exports to Russia amounted to 1.3 billion francs ($1.4 billion) in the first half of 2014, just 2.6 percent of its euro-area exports and less than the value of goods sold to the United Arab Emirates, Singapore and Canada, according to customs office data.

As a neutral country, the Swiss have refrained from imposing direct sanctions on Russia, and companies aren’t directly affected by Russia’s ban on European union foodstuffs. Even so, Switzerland has taken measures to prevent the circumvention of international sanctions, including banning banks from taking on new business with certain individuals and forbidding exports of weaponry and goods for the oil and gas industry.

Thomas Jordan, president of the Swiss National Bank, said the SNB currently forecasts growth of 2 percent for this year. Considering a worsening of the economic environment due to geopolitical conflicts, the cap remains “key.”