(Adds economist comment, background.)
By Silke Koltrowitz
ZURICH, Nov 29 (Reuters) - The Swiss economy unexpectedly contracted in the third quarter, hit by weak domestic consumption and an economic downturn in Germany, its biggest trading partner, the State Secretariat for Economic Affairs (SECO) said on Thursday.
Switzerland's gross domestic product fell by 0.2 percent in the third quarter due to both the industrial and service sectors. It increased by 2.4 percent year-on-year, the SECO said in a statement.
"The strong, continuous growth phase enjoyed by the Swiss economy for one and a half years was suddenly interrupted. Switzerland is thus following the significant economic downturn seen at the same time in other European countries, particularly Germany," the SECO said.
Manufacturing and the energy sector both declined from strong levels and exports of goods also contracted, but October's foreign trade figures pointed to a swift recovery, the SECO said.
In the service sector, trade and the financial sector declined in the third quarter, while business services and the health sector generated moderate growth, the data showed.
"Growth has peaked. Economic weakness in the neighbouring eurozone leaves its mark on the Swiss economy and trade conflicts lead to uncertainty," VP bank Chief Economist Thomas Gitzel said.
He said, however, that he did not see the risk of a severe economic downturn as private consumption and investment in equipment should contribute to growth in the coming quarters.
The Swiss government had warned in September that rising global risks like an escalating trade war between the United States and China, Italy's anti-establishment government and Britain's departure from the European Union posed a threat for 2019.
They could also trigger appreciation in the Swiss franc, which investors often see as a safe haven in times of uncertainty, thus making the country's products more expensive and hurting companies' profitability.
The Swiss government and the Swiss National Bank see the franc currency as highly valued, the cabinet said after its annual meeting with SNB Chairman Thomas Jordan this month.
The GDP data come amid mixed indicators for Switzerland's export-led economy.
Swiss industrial production rose 1.4 percent in the third quarter, while non-farm payrolls rose 1.6 percent year-on-year in the quarter to 5.07 million.
The Swiss purchasing managers' index fell to a seasonally adjusted 57.4 points in October from 59.7 points in the previous month, and Swiss investor sentiment in November dropped to -42.3 points. (Additional reporting by Michael Shields; Editing by Jan Harvey and Raissa Kasolowsky)