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Swiss industry group raises alarm over weakening global economy

Stock MarketsAug 28, 2019 10:02AM ET
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© Reuters. Swiss industry group raises alarm over weakening global economy

By John Revill

ZURICH (Reuters) - The global economic slowdown which has brought countries like Germany close to a recession is spreading to previously resilient Switzerland, according to data from Swiss engineering companies.

The sector on Wednesday reported a sharp slide in orders, revenue and exports during the first half as demand in key markets plunged and the trade war between the United States and China intensified.

The situation among mechanical and electrical engineering companies "grew distinctly worse", industry group Swissmem said, citing a 12.5% fall in new orders compared with a year earlier.

First-half sales fell 1.9% while exports were 1% lower, it said. The downturn intensified during the second quarter as orders plunged 19.5%.

"There are multiple signals of a weakening global economy, a global trade war which hits small countries more than big ones, and a lot of uncertainties in the eurozone, which has led to a rise in the Swiss franc," said Hans Hess, president of Swissmem, which represents mechanical and electrical companies.

"That's a dangerous cocktail," Hess told Reuters.

Companies in Switzerland, one of Europe's most robust economies, also face problems from the safe-haven Swiss franc, which has resumed its upwards trajectory against the euro as political risks mounted.

The franc is trading at 1.087 versus the euro (EURCHF=), close to its highest level in two years, making exports more expensive and crimping profit margins.

The Swiss National Bank seems to have stepped up currency intervention to tame the soaring currency.

"It was already challenging for Swiss companies when the euro/franc stood around 1.14. Last year was a good year for industry in Switzerland, but still 13% of our companies made a loss at an EBIT level," Hess said.

Industry contributes around 18% to Swiss economic output.

The Swiss economy grew by 0.6% in the first quarter, faster than the 0.4% forecast and double the 0.3% rate at the end of 2018. The government, which currently expects 2019 growth of 1.1%, is due to give its next update on Sept. 5.

"We have seen quite a strong growth in the first quarter of 2019, but looking at all the forward-looking data since then -- like the PMI, consumer sentiment, export data -- we see our view clearly confirmed that growth in Switzerland will come down," said government economist Ronald Indergand.

"For the second half of 2019, only weak growth seems likely because of the slowdown in Europe and the trade tensions."

Swiss industry group raises alarm over weakening global economy
 

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