September 19, 2018 / 6:20 AM / a year ago

UPDATE 2-Swiss raise 2018 growth forecast but flag global risks ahead

* Raises 2018 growth forecast to 2.9 pct, highest since 2010

* Sees increasing risk from trade war, Italy, Brexit

* Sees broad-based growth across sectors

* Sees inflation slowing to 0.8 pct in 2019 (Rewrites, adding comments from govt economist)

By John Revill

ZURICH, Sept 19 (Reuters) - Switzerland's export-led economy could post its strongest growth since 2010 this year, but rising global risks like an escalating trade war pose a threat for 2019, the government said on Wednesday.

The State Secretariat for Economic Affairs (SECO) said it expected economic growth of 2.9 percent in 2018, higher than the 2.4 percent it forecast in June.

But the buildup of tariffs the United States and China are imposing on each other may spill over into Europe, and Italy's anti-establishment government could also create turbulence, said Ronald Indergand, an economist at SECO.

Indergand also highlighted possible problems sparked by Britain's departure from the European Union due next March.

All these factors could reduce growth in the EU -- Switzerland's largest export market -- or trigger appreciation in the Swiss franc, which investors often see as a safe haven in times of uncertainty.

A stronger franc makes the country's products more expensive and hurts companies' profitability.

"The risks have increased and they are more tilted to the downside than they were six months ago," Indergand told Reuters in an interview.

"It is getting more risky. We have stressed this this time, since negative risks are clearly outweighing the positive factors."

SECO forecast inflation of 1.0 percent this year and 0.8 percent next year, leaving the Swiss National Bank leeway to keep policy ultra-loose at its quarterly rates meeting on Thursday.

Indergand said the Swiss economy had decelerated slightly early in the second half after a strong start to the year.

"We have seen a slowdown of world trade growth very recently," he said. "Whether this may be an effect of tensions going on remains to be seen."

SECO left unchanged its outlook for 2019 growth at 2 percent, above the long-term average of 1.7 percent.

The nation's economy has been in rude health this year, with a booming manufacturing sector and strong exports helping lift second quarter year-on-year growth to 3.4 percent - the fastest pace in eight years.

The economy also got a temporary boost from international sporting events like the Winter Olympics and the soccer World Cup, as the organising bodies are based in Switzerland and their revenue are allocated to the country's GDP.

The government said it expected exports to continue providing a substantial boost to growth, with the second half underpinned by investment linked to construction and factory production.

"The risks have increased, but the broad-based outlook is still very positive for 2019," said Indergand. (Reporting by John Revill; Additional reporting by Brenna Hughes Neghaiwi; Editing by Maria Sheahan, Shri Navaratnam and Hugh Lawson)

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