Turnaround gives cause for comfort

IN many ways, a period of economic hibernation has come to an end. And not surprisingly, there is a sense of relief.

Bernard Lambert, senior economist at Pictet & Cie, told the South China Morning Post from Geneva, that prospects for a sustained economic recovery in Switzerland this year, were 'heartening', considering favourable domestic and external factors. Mr Lambert, analyses Swiss macroeconomic indicators for Pictet & Cie, which is Switzerland's premier private bank and also asset management specialists in Europe.

Swiss GDP, Mr Lambert said, 'was practically flat' in the first quarter this year. But he estimated 1.3 per cent growth for 1999.

Swiss National Bank chairman, Hans Meyer, said recently that 1.5 per cent growth appeared plausible, noting that many signs point to growth gathering pace towards the end of the year.

The Swiss Federal Office for Foreign Economic Affairs, has forecast a rate of 'about 1.2 per cent' growth for the year.

Pictet's Mr Lambert, noted that GDP could indeed be boosted in the final quarter because of millennium-related domestic activity, while cautioning that it could also be a dampener for the economy in the early days of 2000.

He noted that activity towards the turn of the century may mean a Sfr 1-2 billion (about HK$5-10.3 b) boost, that is to say 'a quarter to half a percent age point of GDP'.

While that may re main a temporary issue, consumer spending fu elled by higher incomes, low inflation and poten tial for further export growth are expected to fire up the economic en gine. Exports to Asia, helped by the relative weakness of the Swiss franc against the US dol lar, are among the factors that will stimulate economic growth.

Mr Lambert said: 'Swiss exports to Asia, other than Japan, have increased by nearly 14 per cent, or an annualised 29 per cent, between the last quarter of last year and the second quarter of this year.' Acknowledging that the Swiss currency's relative weakness against the dollar, helped the export revival, Mr Lambert said, the 'main driving force behind this surge is definitely the upturn in regional demand'. He predicted the US dollar could weaken 'significantly in the next few months'.

'Exchange rates will play a less positive role for Swiss exports, but, again, I think it is a much less important factor than demand,' Mr Lambert, said.

About 11 per cent of Swiss exports were shipped to Asia, Mr Lambert said, adding that 'prospects for Swiss exports to the region are heartening'.

Switzerland's total trade with Hong Kong, however, dropped 6 per cent last year to $22.5 billion. But between the last quarter of 98 and the second quar ter of this year, exports to Hong Kong rebounded by 9.8 per cent, Mr Lambert, said.

Imports from East Asia accounted for 2.4 per cent of total Swiss imports in 1998. Overall imports grew slightly more than 8 per cent during last year to Sfr107 billion, much of it from the EU.

Mr Lambert, said exports to Europe would also be crucial to the economic revival. Recovery in exports to Europe would be 'much more modest', he said. 'But as Western Europe buys about 65 per cent of Swiss exports, demand in Europe is of vital importance to the Swiss economy.' Figures from the Swiss Federal Office for Foreign Economic Affairs, show that Germany accounted for about 24 per cent of Swiss exports to the EU, followed by France (9.6 per cent) and Italy (7.8 per cent).

Among the many domestic factors that will have an impact on the recovery, is household spending, which, Mr Lambert said, was brisk.

'In nominal terms, consumer spending reached Sfr49 billion in the last quarter,' he said. This accounts for 62 per cent of GDP.

Much of the spending was on food, health and leisure, he said.

These indicators, coupled with low inflation and interest rates, and declining unemployment, are seen as signposts indicating a brighter outlook for the Swiss economy, compared with the slowdown last year.

The Swiss Federal Office for Foreign Economic Affairs, cautions however, that there are external risks such as 'further deterioration of emerging market economies, uncertainty about the sustainability of the US growth', which may put pressure on the country's economic recovery.

Kapila Bandara