(adds more details, consumption indicator, background)
By Sven Egenter
ZURICH, Feb 24 (Reuters) - Swiss manufacturers are facing a long slump after demand collapsed at the end of 2008 as tough credit conditions and a strong Swiss franc are hurting the export-dependent sector, the Swissmem industry body said.
The association's warning against an outright credit crunch
highlights the urgency for the Swiss National Bank to get money
flowing again between cash-rich smaller banks and the country's
large banks, UBS
"We expect that the crisis will last longer," Swissmem president Johann Schneider-Ammann said at a media conference in Zurich, adding the crisis was set to drag on well into 2010.
The association represents the engineering, metal and electrical industry, which accounts for some 9 percent of gross domestic product and exports some 80 percent of its production.
Swissmem head Schneider-Ammann said companies faced increasing difficulties in getting the necessary loans, highlighting the risk of a credit crunch. "Personally, I think it (a credit crunch) exists," he said.
It was key that banks overcame their reluctance to provide loans and started to cooperate among each other, he said. "What's the money good for if it stays with the banks," he said.
SNB board member Thomas Jordan said last week while credit conditions were set to tighten in a recession, Switzerland did not suffer from a general lack of credit supply.
But Swissmem Vice-President Hans Hess said especially larger loans were hard to get. Banks were not coming together for syndicated loans, he said. "The trust among banks is not there." Jordan said the central bank was working on deals using covered bonds to get liquidity to the large banks, UBS and Credit Suisse, which account for 35 percent of domestic lending. [ID:nN16323669][ID:nLI431032]
The tighter credit comes at a time when demand for Swiss engineering products is dwindling fast: Foreign demand dropped some 34 percent on the year in the final quarter of 2008, while domestic orders fell 18 percent.
Sales for the sector shrank by 3.5 percent on the year, the first decline after 13 quarters of growth.
Companies such as engineering group ABB
The rise of the Swiss franc added an extra burden to the export-dependent economy and the central bank needed to have a watchful eye on the currency, Schneider-Amman said.
The franc has risen some 10 percent over the last year against the euro, the currency of Switzerland's main export markets, trading at around 1.48 per euro on Tuesday.
The SNB forecast in December that the Swiss economy will shrink by up to 1 percent this year. But SNB board member Jordan indicated the central bank may have to cut its forecast at its next meeting in March given the slew of weak economic data.
The UBS consumption indicator fell in January as consumers cut back spending on cars, showing that the last pillar of Swiss growth was also weakening.[ID:nLO326248]
(Reporting by Sven Egenter; editing by Chris Pizzey)